Cofounded by Polygon’s Sandeep Nailwal, Dubai-based Sentient Labs has raised $85 Mn in a seed funding round co-led by Peter Thiel’s Founders Fund, Pantera Capital, and Framework Ventures. The blockchain-based AI startup also got backing from Robot Ventures, Delphi, Republic, Arrington Capital and few other VCs.

Besides Nailwal, Sentient Labs counts Pramod Vishwanathan (Forrest G. Hamrick Professor of Engineering at Princeton University), and Himanshu Tyagi (Professor and Scientist at IISc Bangalore) as cofounders. 

Sensys, an open source AI venture development company is also part of the launch team for the startup which was founded in January 2024. 

Sentient is built on the Polygon CDK chain and aims to develop an open-source decentralised AI and, eventually, AGI. “Sentient is building on Polygon technology, that’s my main reason to support it,” Nailwal said Inc42.

Speaking to Inc42, cofounder Tyagi said, “The funding will be utilised to scale our engineering team and the platform. Since we are committed to delivering results, it also requires building a supportive ecosystem — the developers’ community. That’s where the funds will be used.”

On the roadmap ahead, Tyagi said that Sentient will enter the testnet phase within the next two months. “Sentient is lean and thin, and we wish to remain so. The current team size is 20, and we will add a few more members,” he added.

How Sentient Differs From OpenAI And Google’s Gemini

There are over 70,000 AI projects listed on platforms like GitHub, GitLab, and OneDev. Most of them seem to be either redundant or replicas of existing AI projects. Why is there a need for another AI project like Sentient?

Nailwal has earlier explained the idea behind Sentient which is to build an open world through blockchain to achieve transparency and fairness, as opposed to a closed world dominated by large companies. He noted that the rapid development of centralised AI and its integration into daily life has brought humanity to a crossroads. 

“We can choose either a closed world controlled by a few closed-source models operated by large enterprises or an open world with open-source models and verifiable reasoning. The latter can only be achieved by using blockchain to make AI more transparent and fair,” he said at an event earlier this year. 

Tyagi stated that the difference lies in Sentient’s approach versus the AI giants such as OpenAI, Google or Meta. Most existing AI projects are either closed-source or semi-closed, with some not disclosing their data or technology. 

For example, Meta’s Llama is only partially open source because it releases model views but not the data used to create those models. Releasing such data would have legal implications due to the unknown contents within large datasets, as seen in cases where datasets contained inappropriate images.

“With Sentient’s open-source architecture, issues like plagiarism and backdoor attacks can be better monitored, similar to smart contracts on blockchain. The code and data need to be open source for better auditing and transparency,” said Tyagi.

Sentient Labs has been developed based on the Open, Monetizable, and Loyal (OML) model, where community members are invited to develop for Sentient and will be rewarded accordingly. Nailwal has previously voiced concerns about developers not being truly rewarded for their work. The intersection of blockchain and AI enables the OML model, which Sentient claims benefits all stakeholders.

When asked about issuing a token to incentivise the community, Tyagi responded, “Eventually, something like that will be done. But monetisation and value distribution are separate points. We need to create powerful, useful AI that stands at par with leading AI technologies. When our AI is used, everyone who contributed will be rewarded through the blockchain protocol, which can take one to one and a half years.”

Crypto+AI: What Does That Mean?

In a statement shared with Inc42, Nailwal said that AI centralisation and its resulting safety issues are the biggest challenges humanity currently faces. Crypto and blockchain are the only ways to counter centralisation; hence, all efforts should be made to make something work on that front, however hard it might be. I have always hoped that the Polygon ecosystem puts its effort into that front.”

While other crypto projects have ventured into the AI space, the idea was to explore AI use cases for a particular crypto. However, Nailwal defines Sentient as a cloud-sourced AI company using blockchain incentives, but fundamentally an AI company.

“Sentient differs by focusing on what crypto can do for AI, creating a decentralised infrastructure that could compete with the likes of Google and AWS. Our long-term goal is to build an AI economy for all, enabled by an open-source ecosystem,” added Tyagi.

He also mentioned the importance of AI agents for blockchain functions and the need to ensure they perform as expected, drawing parallels to privacy and reliability concerns in enterprise AI. Sentient aims to enable a new AI economy where contributors are rewarded fairly, not just using open projects to build resumes for big companies.

Nailwal has set the goal of building an open AGI, which will require significant infrastructure. 

Tyagi noted, “We are taking one step at a time. Our ethos is to have a strong team of experts who came together for this mission. We believe a lot of AI development is happening outside large companies. We start with foundational models and align our efforts with ongoing benchmarks and research. Sentient is a research-first company, continually building and evolving.”

The post Sandeep Nailwal’s New Venture Sentient Raises $85 Mn To Take On OpenAI, Llama appeared first on Inc42 Media.

What happened when tech giant Google flexed its muscles and delisted 10+ popular Indian apps from its world-leading app store, citing the long pendency of billing compliance? Well, homegrown Internet companies got angry; #EvilGoogle started trending and government intervention was sought to redeem the situation.

A temporary truce is in place, but Indian developers are now actively seeking a robust alternative. And that’s where fintech giant’s PhonePe four-year plan comes into the play, with a made-for-India Indus Appstore.

Much of this narrative is familiar. Once again, Google is up in arms, trying to ensure that all Play Store apps, annually earning $1 Mn or more, use its billing system so that it can collect 30% commission on every in-app purchase — more on the current fee structure later.

Google has been at it since 2020, allowing a year’s grace period for non-compliant apps to integrate the technology. After that, the tech giant faced roller-coaster legal battles in India regarding its alleged market dominance and anti-competitive practices on Play Store. Petitions have also been filed before the NCLAT against Play Store’s billing policy. 

Unsurprisingly, Google lost its initial lawsuits and was fined a little over INR 1,337 Cr and INR 936 Cr in two separate cases by the Competition Commission of India (CCI). After all, the tech behemoth owns the Android operating system, and Google Play Store, a leviathan of an app marketplace, comes preloaded on almost all Android smartphones. The reach and the convenience typically make the Play Store the go-to choice. Hence, it might have hit Google harder when Walmart-owned PhonePe launched the Indus Appstore in February this year to challenge Google’s dominance.

No doubt Google restored the apps after MeitY’s (ministry of electronics and information technology) intervention. But it is merely an extension of the payment deadline, and the tech giant will continue to send invoices to ‘non-compliant’ apps. Unless developers from all categories are ready to shell out the 30% ‘Google tax’ and want to abide by the company’s aggressive approach (the outright ban slapped on the Indian apps is proof enough).

The timing of Indus’ launch could not have been better. Indus went live on February 21, just ten days before Google made its delisting announcement on March 1, and nearly throttled a host of major apps such as Matrimony.com, Jeevansaathi, Shaadi, Naukri, 99acres, KukuFM and STAGE, among others. In essence, the all-new app store had a fortuitous entry amid a growing clamour for fair industry practices, while developers started looking for an India-focussed robust alternative. 

In contrast, the Indus Appstore offers a hyper-localised and affordable pp marketplace, aligning better with Indian customers through multilingual solutions.

Within three months of its launch, the new app store has started to make a dent in Google’s ‘alleged’ monopoly, as it offers a developer-friendly environment, charges zero commission on in-app transactions for the first year and has zero publishing fee. (Google charges a one-time publishing fee of $25, but Apple’s App Store is more expensive as it charges $99 per year.) It lists more than 2 Lakh apps across 45 categories and has surpassed 2 Mn installs, a PhonePe spokesperson told Inc42.  

Indus supports 12 Indian languages for access to localised content and has introduced a host of India-specific features such as voice search,  video-led discovery, multi-format ads and more.

“We are seeing a steady increase in the number of users. The app store has gained significant traction since its launch, especially in Tier II cities, which account for 45% of the user base. Popular app categories include finance, games, social media, entertainment, tools, communication and shopping,” the Indus Appstore and PhonePe spokesperson added.

For context, PhonePe has moved its domicile from Singapore to India, shifting all businesses and subsidiaries to India, including the Indus Appstore. Besides this, it had also been fully hived off from Flipkart, which had acquired PhonePe, and currently Walmart is the majority owner of PhonePe.

Why Google Play Store Has Won So Far 

Indus is not the first app marketplace to challenge the Play Store. Earlier, there were several app stores such as Nokia Download (SymbianOS), Download Fun, Pocket Gear, GetJar, Handango, Handmark and MiKandi. Others like Opera Mobile Store, BlackBerry World and HP App followed suit after the Play Store was launched in 2012. But challenging Google’s monopoly in the app marketplace was not possible even for pure-play tech companies like Opera, Firefox or others.

While Google fights lawsuits in various courts over industry practices and commission rates, will Indus be able to gain a strong position in the app marketplace? Before we delve into the pros and cons of the new app store’s success potential, let us look at the existing marketplaces and their fee structures.

Going by how Google Play Store stacks up compared to the competition, will it be fair to suggest that its contentious billing policy may pave the path for success for the likes of Indus? Amit Ranjan, founder of SlideShare (acquired by LinkedIn for $120 Mn) and architect of the Indian government’s project DigiLocker, said the priorities would tend to differ in this case. 

“Building an app store requires deep technical expertise and a strong technical team. The business aspect comes later. You also need to maintain ‘cyber hygiene’ by tracking and filtering out fraudulent apps. This is an ongoing process, and any misstep will directly impact the store’s reputation,” Ranjan told Inc42.

Ranjan has a point. Consider how Opera Mobile Store was fully decommissioned last year, although it catered to 130 Mn+ monthly active users and clocked 1 Mn daily downloads of apps at one point. The reason for shuttering: Opera was allegedly involved in unfair and illegal data transactions.

Even the Google Play Store drew flak and suspended or removed around 4.7K fraudulent loan apps between April 2021 and August 2023, according to Rajya Sabha data. Therefore, nothing short of a robust tech ecosystem and stringent compliance can ensure success for independent app stores despite significant download numbers. 

Nevertheless, a few Android app stores like Samsung have thrived as they have built robust technology and business ecosystems. Interestingly, Google has reportedly struck a deal with the Samsung Galaxy Store to keep its Play Store as the default app marketplace on Samsung mobiles. According to media reports, Google offered Samsung exclusive gaming content, deals and events on the Play Store and YouTube and agreed to ‘white label’ its Play Store as the Galaxy Store so that Samsung could maintain its branding.

When negotiating with Samsung, Google preferred a lump sum payment model over a user-focussed payment strategy.

Will these ‘agreements’ make it difficult for developers and users to opt for alternative app stores? We have an intriguing parallel here. In an antitrust lawsuit held in the US last year, states and the federal government questioned Google’s stand regarding its search engine dominance and how it tried to squash competition by paying Apple and other tech companies to ensure that Google search remained the default option. The search giant defended itself by saying none of these agreements were ‘exclusive’ in nature and users could easily change default settings and opt for other search options.

Although Inc42 cannot independently verify whether similar ‘business deals’ are impacting the app economy in India, Google’s agreements with different OEMs cannot be ignored. And these may warrant more scrutiny from the regulators in the near future (more on these challenges later). Incidentally, a company spokesperson has confirmed that the new app store no longer caters to the Samsung Galaxy Store.  

A user-friendly interface, a supply-demand match (enough engaging apps across categories are required to keep users coming back) and a robust revenue model for developers and publishers are also critical for an app marketplace to survive, according to Karan Lakhwani, India head at the app intelligence firm AppTweak. The major challenge is surpassing the Play Store’s consumer experience, validated by reviews, ratings and download numbers, he added.

How PhonePe Joined The App Store Bandwagon

Google Play Store may enjoy cutting-edge tech prowess and a better business network, but the biggest USP of Indus Appstore is its made-in-India tag, according to the PhonePe spokesperson. 

“Most users are driven to download and use the app store because it is made in India, for India. On the other hand, the developer-friendly ethos of the app store makes it an ideal platform for app creators – that’s the general feedback. They also think the integrated phone login, targeted advertising and engaging features will help them reach niche audiences, driving widespread adoption and engagement,” PhonePe said.

However, the Indus Appstore was not built in a day. Here is a brief look at the backstory, from the initial launch of Mofirst by three IIT-Bombay alumni to many pivots and developments – first as a smartphone maker and then as an app bazaar. Eventually, the company was acquired and rebranded by PhonePe after an intense valuation dispute with key stakeholders, including Affle. 

Many think that the Indus Appstore will soon emerge as the darling of the Indian market, offering unique features to empower consumers and enhance user delight.

How Indus Appstore Is Building A Moat Against Google Play

Indus parent PhonePe is aware that no standalone app store can counter Play Store’s power of innovation and deep pockets. However, it has a long-term plan to take on Google’s ubiquitous app marketplace by leveraging its knowledge of the local market and the subsequent rise in user base. 

Unlike other independent app stores that looked to take on Google, PhonePe holds an edge with more than 535 Mn registered users and 260 Mn monthly active users (MAU), which guarantees a significant number of quality users, and, hence, monetary success for developers.

However, this may not be comparable to what one earns on the Google Play Store or Apple App Store. 

PhonePe aims to create a moat around its app store business by partnering with smartphone makers such as Nokia and Lava. The goal is to pre-install Indus Appstore on up to 300 Mn devices by the end of 2024.

“Our collaborations will ensure seamless app installations and updates. We want to make the Indus Appstore a default choice on smartphones in India, signifying a shift towards a more inclusive, autonomous and developer-friendly app ecosystem,” the company’s spokesperson said.

PhonePe has also acquired a payment aggregator licence from the RBI to enable seamless in-app transactions (payment aggregators allow clients to accept various payment methods and disburse to multiple stakeholders). 

PhonePe Technology Services, a wholly owned subsidiary of the group, was also issued an account aggregator (AA) licence by the RBI. AAs typically share financial data across accounts and institutions securely so that financial information users or FIUs (like lenders or insurers) can make informed decisions. However, no data can be shared without the explicit consent of account holders.

“Some of our clients are keen to be on the Indus Appstore,” said Lakhwani of AppTweak. “I understand that its way of communication and advertising is very different from others. Google Play Store requires a different set of app metadata to succeed. So does Apple. And Indus, too, has a different strategy. Each has created a unique strategy for its app store to succeed.”

However, to attract more users, the company must target different segments uniquely, which Koo should have done when it tried to become as a Twitter killer.

“There’s always a value-seeking user, a discount-seeking user and a luxury or premium user seeking a high-quality experience. Indus should target different types by tailoring its communications to highlight discounts, user experience or specific apps,” said Lakhwani.

Can Indus Become The Atmanirbhar App Store? 

For a long time, Indian entrepreneurs and app developers have demanded that a truly Indian app store be built to look after their interests and counter the Play Store. Paytm founder and CEO Vijay Shekhar Sharma was particularly vocal, saying Google’s charges were costlier than the business taxes the internet businesses paid in India. Paytm also launched a mini app store, and a few more popped up, thinking it was an opportune moment. One such entity was Mitron, a short video app that hurriedly launched an app discovery platform. However, none of these lasted for long after the initial euphoria died.

Given these ground realities, can PhonePe’s app store topple the Google Play Store this time? Two of the five experts with whom Inc42 spoke doubted whether it would be viable in the long run due to Google’s near-monopoly across the Android ecosystem. 

For instance, the entire Android market can be split into five major segments – the licensable OS market for smart mobile devices (smartphones, tablets, and more), app stores, web search services and online video hosting platforms (OVHP). Google has standardised agreements with various companies to maintain its dominance in these segments. Its crucial agreements with OEMs encompass mobile application distribution, anti-fragmentation (for seamless versioning), Android compatibility commitment, revenue sharing and mobile service distribution/placement bonus.

OEMs must adhere to these stringent agreements, which prevent them from developing Android non-compatible hardware. Moreover, they can only include Google Mobile Services (a collection of applications and APIs such as Google Search, Chrome, Gmail, Google Maps, YouTube and more that help support functionality across devices) after signing the mobile application distribution and anti-fragmentation agreements. 

Also, Android prevents installations from third-party sources. When users manually download apps from a third-party app store, they receive multiple security warnings that the apps sourced from elsewhere may harm the device. These warnings often deter users, while developers have little choice but to operate through the Play Store.

Of course, such ‘trade practices’ under the guise of security have been challenged worldwide, including in India. The CCI had already fined the tech giant, but these penalties have been challenged in the Supreme Court. In a separate case, Winzo Games is also fighting a case in the apex court regarding these ‘security warnings’ and other issues. 

Elsewhere, in the Epic Games versus Google case, a California jury found that the latter violated antitrust laws (laws to ensure economic competitiveness and counter monopoly) in Google Play Store’s billing practices. The presiding judge will announce the measures to be undertaken in 2024. 

In May 2022, the European Commission and the Competition and Markets Authority also probed Google Play Store’s business practices. South Korean regulators are also investigating Play Store’s billing, including a formal review of Google’s compliance with new billing regulations.

Rameesh Kailasam, CEO at IndiaTech.Org, a think tank for Indian tech startups, pointed out that the Play Store makes in-app purchases prohibitively expensive and economically unviable for startups and internet economy companies.

To begin with, 15-30% commissions are an issue if transactions are done within the Google Play Billing system. Google came with an alternate billing system, where the app developers can use their payment gateways but have to pay a service fee of 11-26%, which is currently being investigated by CCI. But until now, it has not been a win-win for small developers, paying a cut to one of the world’s richest tech companies.

“Moreover, many of these apps are built outside India despite catering to the Indian market. It means the income from apps or the commission does not accrue to India. Although Google allows for some bypass routes, these are still prohibitively costly,” Kailasam added.

Even when developers list their apps on another app store, integrating them with Google Ads requires Google Play Store listing IDs. Therefore, anyone looking for a wider reach through Google’s pay-per-click advertising platform is compelled to list the apps on the Play Store.

But there’s more to this narrative. While developers struggle to cope with all sorts of arm-twisting, winning a business battle with an industry heavyweight could be too difficult, as the Aptoide App Store soon found out. The Portugal-based mobile app marketplace runs on the Android OS, and the store can be accessed and installed via the store’s official page. Moreover, unlike Google, developers can manage their stores on the platform.

“With Aptoide, that moment [of contention] came in 2018. We took Google to court after the tech Goliath tried by all means unnecessary to suffocate the company’s activity and kill the competition,” founders Paulo Trezentos and Álvaro Pinto shared on their website. “They told users that Aptoide was a menace to the mobile society. They made Aptoide’s app vanish from Android phones without warning. They kept circling more wagons around Google Play Store, making Android app downloads increasingly difficult outside of the platform.”

Google eventually lost the case. The courts and the European Commission found it guilty of abusing its dominant position and anti-competitive behaviour. The tech giant was heavily fined and ordered to backtrack.

But one thing is clear. Given its influence, capital and resources, it will always be tough to beat Google at its own game. Closer home, it will be even more difficult. After all, 95% of smartphones in India run on Android and the Google Play Store has been the default app store for most of these users.

Just like Aptoide, PhonePe or even Walmart may have to lock horns with Google sooner or later for a greater market share. However, the success of the Indus Appstore will largely depend on its ability to deliver a superior user and developer experience that can convince all stakeholders to give it a shot. 

PhonePe’s founder and CEO Sameer Nigam once said that a billion people or more could not be dictated regarding app discovery or transaction if they wanted a change. Indus and PhonePe could be heralding that change.

[Edited by Sanghamitra Mandal]

The post An App Store For India: Can PhonePe’s Indus Loosen Google’s Grip? appeared first on Inc42 Media.

Karnataka’s information technology and biotechnology (IT/BT) and rural development and panchayati raj (RDPR) minister Priyank Kharge expects the state to attract investment of $6.2 Bn in technology sectors such as biotechnology, AI, semiconductors, AVGC (animation, visual effects, gaming, and comics), and healthtech from the US and Europe. 

Following the visit of a delegation of the IT/BT department to the US, the UK, and Europe to attract investments, Kharge said that the deals with the companies, institutions in these places are at various stages, ranging from signing a letter of intent to proposals pending before the State High-Level Clearance Committee (SHLCC).

Responding to Inc42’s query on the materialisation of these deals, the minister said, “We have set a deadline of 180 days for the key conversions.”

During its trip, the delegation held meetings with companies like SAP Labs, Bloom Energy, Ambient Photonics, Arm Holdings, and Waters Corporation. Besides, the members also met Vinod Dham, the founder of IndoUS Venture Partners, which has invested in Indian startups such as Snapdeal and Myntra in the past.

According to a statement issued by the state’s IT/BT department, the delegation also had discussions with several German companies that are looking to expand to India in the areas of semiconductors, electronics, and heavy industries.  

The department reached out to these companies for investment in Karnataka and is optimistic about attracting mega investments. The IT/BT department also conducted roadshows across four countries – the UK (in London), France (in Paris and Annecy), Switzerland (in Geneva), and Germany (in Munich).

Besides, while 25 French SMEs have already their presence in India, 50 more are in the queue to expand their presence here, thanks to anchor investors such as Airbus, Capgemini and other companies, said an IT/BT official.

The ministry organised the trip to pitch Karnataka as an investment hub for companies across sectors like electronics, IT, and biotech. Besides, one of the key agendas for the visit was to get more international investors at the Bengaluru Tech Summit 2024, which will be held in November this year.

The delegates also participated in the London Tech Week and the International Animated Film Festival at Annecy.

Kharge told the media that the idea behind such visits is to solidify Karnataka’s position as the number one investment destination and skill development and innovation capital.

Besides, Karnataka is likely to sign a memorandum of understanding with Stanford Biodesign for the latter’s medtech startup mentorship and accelerator programme. The initiative is part of the plans of the biodesign department of Stanford University to expand its ‘Founders Forum’ initiative to Bengaluru. A team from Stanford Biodesign is expected to visit Karnataka next month for this.

Meanwhile, the department of IT/BT said that it is currently working on preparing a ‘Startup Directory’, which will have details of all the startups in the state, their brief profiles and turnover. Besides, it is also working on an online startup platform to connect with VCs.

“The startup portal that will help connect startups and investors will go live within a month,” said Kharge. 

In a previous conversation with Inc42, Kharge said that the Karnataka government is engaging directly with VCs to discuss funding, exits, and more

“We have asked VCs what steps we should take to ensure better collaboration and support for startups. It may require bringing them together on a single platform for assessing ideas or providing mentorship and networking opportunities beyond just funding,” he said, adding that the state would announce a new collaboration framework for startups and VCs within the next few months after the Lok Sabha polls.

Karnataka’s capital Bengaluru is hailed as the Silicon Valley of India, with startups based out of the city dominating funding trends over the years. However, the trend witnessed a change last month, when Delhi NCR took the top spot in terms of funding. Bengaluru-based startups cumulatively raised $115 Mn in May, trailing Mumbai and Delhi NCR. 

The post Karnataka To Attract $6.2 Bn In Tech Investments From US, UK, And Europe: Priyank Kharge appeared first on Inc42 Media.

In July 2021, when Zomato filed for its IPO, there was no precedent for the food delivery market. Zomato had recorded a loss of INR 886 Cr in FY21 and was not profitable, a critical consideration for investors looking at a fresh IPO.

Despite all misgivings, the market sentiment for Zomato was positive. Few big tech companies or startups had gone for an IPO before Zomato. As a well-known brand for many Indians in tier I, II, and III cities, Zomato managed to bring in more than enough interest.

The IPO was subscribed 38.25 times, and Zomato listed at a premium of over 51% compared to the issue price. 

And now, the focus is on Swiggy, which, fortunately or unfortunately, has Zomato as a benchmark. 

Zomato has recovered from past losses and is trading at an all-time high. An investment of INR 1 lakh a year ago would have yielded over 200% profit today, showing investor confidence in the business.

Bengaluru-based delivery and quick commerce giant, Swiggy submitted draft papers to SEBI on April 30 for a confidential filing. While we don’t know the particulars of the IPO, Swiggy plans to raise approximately $1.25 Bn from the IPO, with a fresh issue of $450 Mn and an offer for sale (OFS) component worth $800 Mn. And, $90 Mn through pre-IPO placement.

After LIC, Paytm, Coal India, General Insurance and Reliance Power, this will be the sixth-largest IPO in the Indian market.

For Swiggy, the situation is clearer. With Zomato already listed, there is little room for overvalued pricing. If Swiggy’s pricing is accurate and the market remains positive, the IPO could easily be oversubscribed.

Drawing a parallel with Zomato, Umesh Chandra Paliwal, cofounder of UnlistedZone, said the current environment is positive for companies looking to raise funds via IPOs. The success of Zomato, which has delivered good returns and recently achieved profitability, sets a favourable precedent for Swiggy. 

“Zomato has become profitable in its food delivery business, although its Hyperpure and Quick commerce segments are still incurring losses. Quick commerce is expected to become more significant than the food delivery business in the future. We believe Swiggy, given its market position and potential growth in Quick commerce, should achieve profitability within the next two years,” said Paliwal.

If Swiggy is to replicate Zomato’s success, a clear barometer would be the company’s performance in the unlisted market. So how are grey market traders looking at Swiggy? 

Swiggy In The Grey Market

One caveat before we look at the analysis: Swiggy stocks are currently available only in tranches. Due to the limited supply, the stocks are not even being traded on multiple platforms, according to grey market analysts. 

Inc42 checked up to six unlisted market platforms where Swiggy stocks are traded, and saw share prices ranging between INR 320 and INR380.

Confirming this, UnlistedZone’s Paliwal said Swiggy’s stock is being traded very sparingly in the unlisted market so this traction is still inadequate to gauge the potential IPO sentiment. 

In January 2022, the company raised about $700 Mn at a $10.7 Bn valuation, led by US-based asset management company Invesco and Dutch investor Prosus Ventures. 

However, Invesco cut Swiggy’s valuation twice in 2023 before raising the value of its investment in Swiggy to over $12.7 Bn. In line with this, Baron Capital also raised the value of its investment in Swiggy to over $15 Bn this week.  

Currently, in the grey market, Swiggy is trading at a valuation of $9 Bn to $9.5 Bn, which could see some adjustments with Baron Capital’s markup. 

Abhishek Ginodia, cofounder of pre-IPO platform Altius Investech, said that since Swiggy shares were introduced in the unlisted space, they have been trading in the range of INR 320-INR 350, which is at a valuation of $9 Bn-$9.5 Bn. 

Trades are also limited as cheque sizes have been restricted to INR 5 Cr and above. 

Based on the available information, Paliwal estimates Swiggy’s IPO valuation to be around $10 Bn. On the other hand, Ginodia expects the IPO valuation to be around $11 Bn-$12 Bn, approximately 30-40% lower than Zomato’s current market cap.

A managing partner of an auditing firm closely working with Swiggy said the IPO is the ultimate exit strategy for most investors, particularly late-stage ones. To offer them a profitable exit, the valuation could be anywhere between $12 Bn to $14 Bn, depending on how the pre-IPO round goes. “This is why Swiggy shares could also see a decline initially, as many might consider it overpriced,” they added.

Swiggy Vs Zomato: How The Two Giants Compare

Despite Swiggy surpassing Zomato in revenue till FY 23, Zomato has always led the way, from building the food delivery industry to going public.

Swiggy has no choice but to directly compare Zomato’s bottom line and scale while justifying its pricing. And, it falls short on multiple accounts compared to Zomato which has recorded a 67% rise in revenue for FY 24.

Swiggy lags in monthly active users (MAU) and gross order value (GOV). Zomato claims over 30 Mn MAUs, while Swiggy has around 24 Mn. Zomato’s GOV is $3.1 Bn, compared to Swiggy’s $2.6 Bn.

Ginodia points out that quick commerce is Swiggy’s key differentiator. “Swiggy and Zomato have similar revenue rates, but Zomato has performed better. Zomato improved its performance by reducing losses from Blinkit, while Swiggy’s quick commerce business negatively impacts its contribution margin by 50%. This could result in Swiggy’s IPO being valued lower than Zomato’s,” said Ginodia.

While Swiggy’s food delivery services have become profitable, the quick commerce segment, Instamart, has incurred significant losses despite revenue growth. 

As per sources, who have seen Swiggy’s disclosures as of September 2023 (H1FY24), the company has touched INR 4,735 Cr in revenue from food delivery and quick commerce. 

Thanks to this momentum, Swiggy is on course to report over 20% higher revenue in FY24, from the INR 8,260 Cr it reported in FY23. 

While we don’t know the loss for FY24, Swiggy trimmed its net loss to around $207 Mn (INR 1,730 Cr) in the first nine months of the fiscal year. Sources did not indicate whether Swiggy would finish FY24 with a profit, after it reported a net loss of INR 4,179.3 Cr in FY23.

Will Confidential Draft Papers Sway Investors?

Swiggy has opted for the confidential route for its IPO. Will this create confusion among investors?

A managing partner of an audit firm explained that this means Swiggy’s draft red herring prospectus (DRHP) won’t be immediately available for public scrutiny. Swiggy can control the flow of information for a little longer. However, the papers will still be shared with institutional investors, so it won’t impact the overall IPO. 

The confidential filing strategy helps the company control the narrative for a bit longer and is beneficial for the pre-IPO round.

Does the lack of a public DRHP raise concerns about transparency for potential retail investors?

Paliwal explained, “Filing confidential draft papers is unlikely to impact investor confidence negatively. IPO investors typically fall into three categories: QIB, HNI, and Retail. QIBs usually have access to detailed business and financial information, while HNI and retail investors rely more on the grey market premium (GMP). Therefore, we do not foresee any adverse effects on investor confidence.”

Zomato And Swiggy’s Interlinked Future

Market analysts and experts believe that the timing for Swiggy to go for IPO couldn’t be better, especially with Zomato trading at an all-time high for several weeks. There has been some weakness in the stock in the last month or so, however, when there has roughly been a 12% drop in Zomato share price. 

This indicates that Zomato is not yet a stable stock and could be more vulnerable to market volatility. Paliwal thinks the timing looks favourable for Swiggy, however, when one compares the market to one year ago. 

The IPO market is lively, and Zomato’s strong performance in the past year has yielded significant returns for investors. Swiggy, being valued lower than Zomato, might attract investors seeking value opportunities. They may sell Zomato shares to buy Swiggy shares, hoping for similar or better returns.

Others also said that the IPO momentum is strong which is a good factor for new IPOs, but Ginodia believes Swiggy faces challenges in its core business, especially with the focus shifting towards quick commerce, where it has lost ground as highlighted by our data above.

Beyond immediate factors, broader market trends and shifts in consumer behaviour are crucial. 

The increasing adoption of online food delivery and quick commerce offers significant growth opportunities for Swiggy even as competition has grown in the latter — with the rise of Zepto and the imminent entry of Reliance Jio and Flipkart. 

Strategic partnerships and cutting per-order costs will be crucial for Swiggy, even as it explores ways to improve the customer experience, which has lagged behind the competition.

Ultimately, the success of the Swiggy IPO will depend on the company’s ability to effectively communicate its growth strategy and financial roadmap to investors and show that it indeed has a clear path to profits, like Zomato. 

After a decade-long duopoly and trying to outpace its archrival, Swiggy is realising that after all, its fortunes are more closely linked to Zomato than it may want to believe. 

[Edited by Nikhil Subramaniam]

The post Can Swiggy’s High Valuation Stand Up To The IPO Test? Here’s What Grey Market Indicates appeared first on Inc42 Media.

With the BJP-led National Democratic Alliance securing 290 out of 543 seats in the general election, Prime Minister Narendra Modi is poised to be sworn in for his third term. 

However, this time, the PM won’t command the same majority as before, with the ruling BJP winning 240 seats and its alliance partners securing 50 seats, unlike the previous election where they surpassed 350 seats.

The BJP’s victory for the third consecutive term has raised optimism among certain Indian startups and VCs. And there are reasons for that. Over the past decade, the number of startups has surged from a few hundred in 2014 to 1.38 lakh currently, plus the previous two Modi-led governments were seen as being bullish on Indian startups through policy as well. 

The introduction of the Startup India initiative in 2015 was a significant stride towards promoting entrepreneurship, offering policy support and encouragement. Measures like self-certification for startups under labour and environmental laws aimed to reduce compliance burdens. 

The establishment of the Fund of Funds for Startups scheme, managed by SIDBI, has facilitated funding, complemented by regulatory reforms that have simplified business processes, with over 50 implemented since 2016.

Notably, concerted efforts have been made to promote female entrepreneurship, including earmarking funds for women-led startups. Additionally, the government’s establishment of over 10,000 Atal Tinkering Labs in schools fosters innovation among students, underscoring its commitment to nurturing a dynamic startup ecosystem in India.

However, expectations are higher this time. Speaking to Inc42, T.V. Mohandas Pai, the former CFO of Infosys and partner at Aarin Capital, emphasised the need for funding support. He stated, “We must establish a INR 50,000 Cr fund through various entities in the next five years. With the economy at $3.6 Tn this year, we’re lagging behind in AI and other frontier technologies due to inadequate investment.”

Repeal Angel Tax

Angel tax continues to harass startups, and stakeholders across the ecosystem and Pai stressed that angel tax must be abolished. “The opposition included its removal in their manifesto, despite being the ones to introduce it. The Modi government should repeal the law to eliminate angel tax.”

Angel tax pertains to the taxation of capital raised by unlisted companies through the issuance of shares, where the share price surpasses the fair market value of the shares. The excess amount is considered as income and taxed at the startup’s hands, as per Section 56(2)(viib) of the Income Tax Act, 1961.

Initially introduced to combat money laundering via the issuance of shares at a premium substantially higher than their fair market value, angel tax has often impacted genuine startups, raising concerns within the entrepreneurial ecosystem.

In response, the Indian government has taken measures to alleviate the burden of angel tax on startups, including providing exemptions for eligible startups meeting specific criteria. However, this has resulted in creating numerous restrictions for startups, as evidenced by the fact that out of 1,14,902 startups registered with the Department for Promotion of Industry and Internal Trade, only 10,939 have applied for exemption from angel tax thus far.

“And they must, once again, resolve all disputes promptly and refrain from harassing people with unnecessary complications. Furthermore, suppose income tax officers lose a case in the high court. In that case, they should be penalised because only a certain group of people are deliberately causing such issues for reasons known to them,” Pai added.

Create INR 50K Cr Fund To Address The Capital Issue

During its first term in 2016, the Modi government launched the Fund of Funds for Startups (FFS). Through this scheme, the government has facilitated investments worth INR 17,354 crore in 928 Indian startups as of December 18, 2023.

Pai believes that since the startup fund is either exhausted or nearing exhaustion, the government should initiate another fund because startup funding remains insufficient. 

“For instance, deeptech and startups that have high gestation models don’t receive adequate funding. Once you establish a foundation, attention must be directed towards areas like deeptech and frontier technologies, which have not been adequately supported.”

Highlighting that over INR 8 Lakh Cr worth of subsidies are provided to farmers and others, Pai questioned, “Why not allocate additional funds to startups, which represent the next generation and create significant employment opportunities?

Additionally, he bemoaned the lack of participation by insurance companies in the investment pool for the startup ecosystem. “Globally, insurance companies are the largest investors, but in India, despite having a balance sheet of 65 lakh crores, they have invested minimally in startups. They should have invested, as it makes sense in the long term through funds of funds. However, this significant source of capital remains untapped,” the Aarin Capital partner remarked.

He believes that one of the priorities for the new government in the next five years should be to establish an INR 50,000 Cr fund through various entities. Despite the measurable progress in GDP, sectors such as AI and new emerging technologies are lagging behind in India due to inadequate investments.

Ease Of Doing Business: Address The Regulatory Cracks

While the Modi government deserves credit for introducing a fast-track tax dispute resolution mechanism, self-certification for startups under labour and environmental laws to reduce compliance burden, and tax incentives for startups, including a three-year income tax exemption, there is much more to be done, and some steps have even been taken in the reverse, believes Pai.

Pai criticised the government for making taxation laws complex. “I believe in the last 10 years, more controls have been implemented to grant more power to the taxman than in the previous 10 years. Although refunds and assessments have been expedited for the vast majority of people in the last three years, which is commendable, disputes have not decreased.” 

He pointed out that despite more refunds being issued last year, disputes have not decreased and that in fact, the amount involved in disputes has increased. This indicates that the dispute resolution process has been unsuccessful, which eventually hurts the ease of doing business, just as angel tax.

Additionally, Pai highlighted some RBI restrictions for startups that could have an adverse effect on investments in fintech startups. “Despite having $650 Bn in FDI equity inflow, there are too many restrictions and excessive documentation, which has resulted in a decline in FDI. Even though many big startups are returning to India today, they had previously left to establish domiciles outside. 

Now they are returning because they believe listing in India will provide them with better value. This decision is purely driven by self-interest, which is positive because India is an attractive market. However, the government could have done more for startups to foster a more positive environment, which they have not done.”

Pointing out the unnecessary requirements of three separate valuation reports, Pai said. “When two parties engage in a transaction, they determine the premium and provide a valuation report. However, remitting money takes longer because banks often misplace documents. The process should mirror that of the public market. It’s commendable that shares have been dematerialised, which allows for better tracking of investments in startups and funds. Therefore, it is essential to implement these measures. The IBC has prepared a document that I believe the government should follow.”

Reflecting on the achievements of the past 10 years, Pai asserted that the Modi government has made significant strides for startups by envisioning initiatives like Startup India and Stand-up India.

Moreover, the government has successfully propelled a digital revolution by establishing digital public infrastructure (DPI), which has been highly beneficial for startups.

The post Repeal Angel Tax & Set Up INR 50K Cr Startup Fund: Mohandas Pai Urges Modi 3.0 Govt appeared first on Inc42 Media.

In this brilliant yet turbulent era of generative AI (GenAI), OpenAI’s ChatGPT is undoubtedly one of the best breakthroughs. Using natural language understanding and processing (NLU & NLP), the intelligent chatbot has been built on a series of foundational large language models, or LLMs, ‘deep-learning’ from human languages, behaviours and knowledge repositories and generating new content in multiple formats and multiple languages. 

Whether it is a search generated on the World Wide Web, a complex piece of code writing, or the making of a creative wonder, ChatGPT can transform the output every time, demonstrating the true potential of the ongoing AI revolution. OpenAI further claims that its flagship GPT-4o (‘o’ stands for omni) is faster than the chatbot’s predecessors and will sound more conversational in responding to prompts.

Could this be a definitive step towards the concept of artificial general intelligence, a computing ecosystem on par with human intelligence, with the capability to self-learn? It is a matter of endless debate, with no concrete conclusion in sight. Meanwhile, the GenAI market across industries will likely witness a phenomenal surge from an estimated $67.2 Bn in 2024 to $967.6 Bn by 2032, growing at a CAGR of 39.6% during the forecast period.  

McKinsey & Company further estimates that GenAI and other technologies can automate work activities that currently absorb 60-70% of employees’ time. Combining GenAI with different technologies will also add 0.5 to 3.4 percentage points annually to productivity growth. As this is bound to create a huge economic impact, Google, Meta, Amazon and their ilk have rushed to commercialise their AI projects to tap into the market.

However, Microsoft remains ahead in this race due to its $13 Bn investment in OpenAI. Consequently, it has an exclusive licence to use the underlying model of the groundbreaking technology, although others can receive outputs from the public API. Microsoft’s Copilot currently uses the more advanced GPT-4 Turbo LLM, resulting in enhanced AI capabilities. 

Indian tech companies are not far behind. A handful of homegrown conglomerates, such as Reliance (Jio), TCS, Infosys and Mahindra & Mahindra, are already working on a slew of GenAI projects. A NASSCOM-BCG report estimates that the country’s AI market may reach $17 Bn by 2027, growing at an annualised rate of 25-30% during 2024-2027. 

But this time, the credit for developing an India-focussed equivalent of ChatGPT goes to the Bengaluru-based GenAI startup CoRover.ai. Powered by proprietary cognitive AI technology, the startup launched BharatGPT in December 2023, claiming it to be India’s first-ever large language model. To be sure, it is one of the largest GenAI conversational platforms, gaining traction from more than a billion users in less than six months.   

As GenAI platforms produce new content by processing massive amounts of existing data used to train algorithms, their output – in spite of its near-human excellence – mimics what we already know or tend to perceive. Because most of the training material is in English and comes from Western resources, these tools often fail to serve a diversified global audience or identify cultural nuances. 

That is why global versions of GenAI applications may not always be adequate for India-specific queries, exposing algorithmic biases against the country’s societal contexts. 

Here is a quick experiment we carried out at Inc42 to understand how GenAI falls short of community expectations. When we asked Copilot Designer (an image creator tool powered by OpenAI’s DALL-E) for a portrait of Lord Rama, the images it produced resembled Greek gods whom none of us could recognise as the iconic Indian figure. 

Such examples abound, not only in the Indian context but elsewhere. Google had to halt Gemini AI’s image generation capabilities earlier this year after it was blasted on social media for producing historically inaccurate images.  

Recognising this socio-cultural gap in existing systems, entrepreneurs and developers from India have started working on a GenAI ecosystem tailored for Indian consumption, therefore yielding better contextual outputs across all formats.

The need for India-focussed GenAI platforms led to a host of indigenous developments, such as BharatGPT, Ola Krutrim, and Project Indus (a Tech Mahindra venture including 40 different Indic languages). Each initiative is trying to overcome the language challenges pan-Indian users are bound to face in real life and now in the AI world. 

“The idea is to provide equal access to knowledge and information to all Indians regardless of their background,” says Ankush Sabharwal, founder and CEO of CoRover.ai. 

To avoid any misunderstanding, let us clarify that Sabharwal’s flagship GenAI BharatGPT must not be confused with Reliance Jio’s Bharat GPT. The confusion arose when Akash Ambani, chairman of Reliance Jio Infocomm, spoke at the IIT-Bombay Techfest 2023 and mentioned that the company was working with the premier institution to launch a homegrown AI model called Bharat GPT. 

According to him, the programme is part of Reliance Jio’s broader vision (Jio 2.0) to create a comprehensive AI ecosystem.  

On the other hand, CoRover.ai applied for the BharatGPT trademark in February 2023 and filed for a patent on the BharatGPT LLM model. 

Inside CoRover’s BharatGPT

Before we delve deeper into the LLM’s benefits and use cases, a quick look at its tech components will not be out of context. BharatGPT (GPT stands for generative pre-trained transformers) typically contains encoders for encoding/inputting information and sequences for deep learning and decoders for generating new sequences based on the input. It is further fine-tuned for conversational applications with the help of supervised learning and, at times, human feedback. 

The LLM also uses advanced techniques like word embedding for resource-efficient natural language processing. Simply put, word embedding is used in NLP for word vectorisation or converting words and phrases from human vocabulary into a set of real numbers, which is required for capturing syntactic and semantic information, text classification and text analysis. 

For instance, the word ‘Apple’ could be used as a company name or as a fruit in different contexts. In such cases, word embedding can help capture the most appropriate meaning based on the language and the region, sector and domain, user and business details and specific use cases. Also, faster ML means less burden on GPUs and other computing resources.        

The multilingual application covering audio, video and text has been developed with the government-funded BHASHINI project, the National Language Translation Mission (NLTM) operating under MeitY. BharatGPT offers voice modality integration in more than 14 Indian languages and text modality in all 22 official Indian languages mentioned in the Indian Constitution. Globally, it supports 120+ languages compared to 80+, supported by ChatGPT.

BharatGPT enables a number of features, such as integration with payment gateways, Aadhaar-based eKYC authentication, dialogue management and sentiment analysis. It also claims an accuracy rate of 90%. More importantly, a homegrown LLM will focus more on data localisation, leading to better data security.

How BharatGPT Is Building Use Cases Across Enterprises

Unlike ChatGPT, CoRover’s BharatGPT has been designed for the B2B segment and it has paid rich dividends. “Currently, more than 60 organisations are using our services and we have received 900+ inbound leads so far,” claims Sabharwal, underscoring the startup’s early-mover advantage. The company has secured projects worth over INR 100 Cr scheduled for the next 12 months

It has already onboarded a host of industry leaders and storied organisations, such as LIC, NPCI, HUL, Oracle, Digital India, Mahindra & Mahindra, IRCTC, VRL, KSRTC and redBus. Others like SEBI, India’s capital market regulator, will soon integrate BharatGPT into their existing platforms. 

Using the startup’s BharatGPT model, one can create text-, voice- and video-enabled multilingual virtual assistants (VAs) in no time by drawing information from content/documents specific to the business/use case. Depending on organisational requirements, data files are made accessible to the corresponding BharatGPT VA and generate answers and references from those resources.

Businesses can also integrate a custom knowledge base with enterprise resource planning (ERP) systems, customer relationship management (CRM) tools or application programming interfaces (APIs) for real-time transactions.

End consumers can start using a VA as soon as an organisation/business integrates the bot and facilitates engagement, says Sabharwal. Moreover, the end product is vertical, and the output solely depends on the data fed to a specific chatbot.

A look at an educational project brings further clarity here. If a chatbot built on BharatGPT is to be used for standard V learning, it will be primarily trained on standard V curricula and will respond in sync with the predetermined academic level. Ask a question on the same topic that requires more details expected from a standard XII student, and the response may not be adequate. 

BharatGPT generates output based on curated training materials/datasets instead of relying on random resources. It also limits the scope of generating wrong output, as was the case with Copilot Designer or Google’s Gemini, and the accuracy level remains high. 

Now, let us take a look at the website of National Payments Corporation of India (NPCI) to understand how the chatbot is operating in layers.

“If a person is asking pre-fed questions – say, from the FAQ list – the VA called Pai will respond directly. If Pai can’t fetch the response directly, it will use BharatGPT to come up with the answers, along with the references,” explained Sabharwal.

Similarly, CoRover, along with the Indian Railway Catering and Tourism Corporation (IRCTC), has developed another VA called RailGPT. The mobile application provides information, assistance and a bouquet of services to users while the bot understands user requests and responses in a conversational manner.

Interestingly, the startup recently announced it would shut down its overseas subsidiaries to focus more on the domestic market. 

“Earlier, we opened companies in the US and the UK. Today, we are closing them down. We have requested our partners to handle the legal aspects. Of course, our long-term plan is to cater to those markets. But just now, we are experiencing significant demand here in India and want to prioritise the Indian market first,” said Sabharwal. 

BharatGPT’s Multilingual Edge: Will It Nurture An Inclusive Culture?

According to a recent IBM survey, about 59% of Indian enterprises (companies with more than 1K employees) actively use AI in their businesses. Industry experts also think the country is poised to emerge as the largest market in the conversational AI segment, given its language census data. As per the 2011 census, India has 121 languages, each spoken by 10K people or more. Overall, more than 19.5K languages or dialects are spoken in this subcontinent. 

In a polyglot nation like India, the inability to communicate in local languages can have a heavy impact on the economy. Many liken it to a tariff on trade, increasing the difficulty and costs of doing business across India. On the other hand, talent acquisition based solely on language proficiency has been expensive and inadequate for most companies.

In fact, language and cultural barriers have a profound social impact. Consider this: More than 50K people from Punjab, Uttar Pradesh, West Bengal, Bihar, Odisha and other states reside in Chennai and its suburbs. However, the majority of them do not speak Tamil and often face difficulties when interacting with the local police or registering complaints. Chennai Police also struggled to cope with this communication challenge, which impacted their investigations.

To address this issue, the state police department partnered with CoRover to launch video bot kiosks where users can communicate in multiple languages and GenAI tools can process the information efficiently.

“We have more than 130 Cr users who have access to our virtual assistants,” said Sabharwal. “If you ask me, we have the highest amount of data here, the Indian conversational data. We support the largest set of languages, whether Indian or global.”

As Sabharwal emphasises, one of the most important aspects of GenAI in the future will be improving access to information. Although 90% of the Indian population does not speak English, more than 90% of the information is currently only available in English, which is a substantial gap. 

“With BharatGPT-like LLMs, people speaking different languages will have equal access to all available information,” he added.

The Bottom Line

According to research data by CB Insights, GenAI was the lone bright spot in 2023 amid a harsh funding winter, bagging 48% of the total AI investments, a substantial jump from a meagre 8% in the previous year. Despite a ‘down’ trend in deal size and count, AI startups worldwide raised $42.5 Bn in 2023 across 2.5K equity rounds.

Closer home, India’s GenAI market is expected to grow exponentially in the next few years, surpassing $17 Bn by 2030 from $1.1 Bn in 2023, growing at a CAGR of 48%, per an Inc42 report. The country’s startup ecosystem already comprises 70+ GenAI ventures and counting, pursuing the vision of ‘making AI in India’ and ‘making AI work for India.

With BharatGPT and its ilk (Ola Krutrim, Hanooman AI and more) taking charge and cementing their positions as the cornerstone of India’s conversational AI landscape, India is well prepared for a new era of digital empowerment, where language barriers are dissolved and access to information is democratised. It could be the beginning of a transformative future where AI augments human capabilities and creates an inclusive culture amid diversities to propel the nation towards economic and societal cohesion. 

However, industry experts still doubt whether the world is ready for a large-scale GenAI makeover or if the current traction is another FOMO. The new technology has many challenges, from biases and inaccuracies to deepfakes and hallucinations, which can trigger disasters in a tech-driven, knowledge-centric world.  

As IBM aptly points out in its survey, the top barriers to developing trustworthy and ethical AI are the lack of an AI strategy, company guidelines and AI governance and management tools that work across all data environments. Unless these are addressed, grandiose predictions may turn into zany outcomes in a dystopian world.

[Edited by Sanghamitra Mandal]

The post How BharatGPT’s Indic-First LLM Is Bridging Language Barriers, Empowering Enterprises appeared first on Inc42 Media.

The number of credit cards reached 100 Mn in 2024, a 400% jump from 20 Mn in 2014 to over 102 Mn by April 2024. 

Despite a remarkable rise in UPI payments due to the digital payment platform’s speed and convenience, India’s credit card market has not taken much of a hit. For instance, the total number of credit cards rose to 10.18 Cr in FY24, compared to 8.53 Cr in the previous financial year (a 19% jump), according to the RBI. 

Similarly, YoY credit card spending in FY24 surged by 27% to reach INR 18.26 Lakh Cr compared to nearly INR 14 Lakh Cr in the previous financial year. The reason: The growing adoption of digital payments across Bharat since the Covid-19 pandemic and rise in discretionary spending in metros and beyond.  

Given these trends, credit cards remain a small but premium and most lucrative segment to cater to. However, in a seemingly counterintuitive approach, most Indian banks and NBFCs continue to focus on the lending market for two primary reasons. 

First, the loan market (both secured and unsecured) is much bigger. Second and more important, credit cards incur high operational costs involving reward programmes, fraud protection, customer services and more. Also, small sellers are unwilling to accept payments via credit cards as they are liable to pay a merchant discount rate (MDR) amounting to 1-3% of the transaction value.

The small percentage of credit card users in India poses another hurdle. According to the Federal Reserve data, 82% of U.S. adults had credit cards in 2022. In contrast, 5.5% of Indians hold credit cards, according to latest industry estimates. 

On the other hand, popular loan products like personal loans or even very short-term loans (think of payday loans) for emergencies are quite straightforward in structure and operational costs are typically less. Therefore, most fintechs partner with banks and NBFCs to cater to the loan market. However, with the RBI keeping a strict vigil on lending norms, KYC and advanced security measures, many are now compelled to look beyond lending. 

To be sure, a few fintech platforms have entered the credit card market with co-branded cards, BNPL (buy now, pay later) offerings and hassle-free credit card bill payments. But none managed to stand out except the fintech unicorn CRED, a member-only app that exclusively services credit card holders with a credit score of minimum of 750.

Set up in 2018 by Kunal Shah, CRED aims to provide a premium experience to credit card users through a range of exclusive products and services. Not Everyone Gets It, says its tagline, amply illustrating the unique concept driving its business vision. 

Besides its routine offerings, CRED has introduced a host of value-added services over the years, such as CRED Cash and CRED Mint, CRED UPI (integration with the UPI platform for secure transactions by generating UPI codes), Tap to Pay (NFC-enabled instant payment by tapping one’s smartphone on a merchant’s PoS device) without requiring any physical card and CRED RentPay, with provision for setting up auto-payment. 

The platform has recently launched a bouquet of services such as Garage, a vehicle management platform to keep track of car spending and enable Fastag recharge for toll payments, and Escapes, a selection of curated accommodations for specific destinations, diverging from its pure-play financial offerings.

In 2023, CRED acquihired Spenny, a microsavings platform that helped people save and invest tiny amounts in mutual funds and digital gold. Earlier this year, it also acquired online wealth management platform Kuvera in a cash-and-stock deal. Additionally, the fintech platform has obtained in-principal approval from the RBI to operate as a payment aggregator. It has also set up a Dreamplug AA Tech Solutions subsidiary and intends to acquire an account aggregator licence.

For context, PAs are third-party service providers enabling customers and businesses to make and receive payments online. On the other hand, account aggregators (AAs) are RBI-regulated intermediaries with NBFC-AA licences, enabling financial data-sharing between financial information providers (FIPs) and financial information users (FIUs) within the AA network. 

For instance, the AA ecosystem can help a lending bank (FIU, in this case) access the financial data of a potential borrower from another bank where the person has an account (here, the bank where the borrower has an account is the FIP). All data is accessed and shared securely and digitally, but no data-sharing is possible without the account holder’s digital consent (more on CRED’s role as a PA and a potential AA later).

Talking of numbers, currently 11 Mn use the platform for the monthly bill payments of their credit cards and UPI payments. Over 4 Mn vehicles are parked on CRED Garage, which was launched just last year.

A Close Look At CRED’s Design Thinking For Product Development

Considered quite a business buzzword nowadays, design thinking is all about an iterative process that dives deep into customer requirements, goes beyond conventional assumptions and comes up with innovative solutions.      

When quizzed about CRED’s design thinking approach, a former senior executive explained it candidly. “Take a look at Microsoft. Its operating system is hugely popular, commanding 72% of the [laptop] OS market, while Apple’s macOS accounts for 14.73%. Similarly, Google’s Android OS dominates the mobile space with more than 70% of the market share compared to Apple’s 28%. Yet, Apple’s revenue surpasses Google’s parent Alphabet and Microsoft by 40% and 120%, respectively. That’s because Apple has better identified their potential consumers and focuses on offering experience, while others focus on products.” 

According to the former exec, Shah is pursuing a similar approach for CRED.

The company has identified its user base — affluent and trustworthy Indian consumers. The design thinking is to enable financial progress for the trustworthy with products that improve their lives and lifestyles. 

And, perceiving credit cards and credit scores — a metric for trust — CRED launched the first product as credit card bill payment. This included reminders to pay bills on time, insights into their card usage patterns. 

Further to reward financial prudence, CRED came up with a host of instant gratification instruments including coins, cashback, merchant offers, vouchers for bill payment, as well as access to a curated selection of premium experiences across lifestyle products and travel. CRED Escapes and Store have been further designed to drive engagement and reward members for financial prudence with unique offers.

Garage has similarly been launched to serve their members’ vehicle-related needs. A platform where members could pay challans, recharge FAStag, and renew insurance policies, all on CRED.

CRED has its challenges, though, including market saturation and increasing customer acquisition cost (CAC). Consider this. According to the CRIF High Mark report, among credit card holders in the youngest age bracket of 18-25 years, 81% have one credit card, 12% have two cards, 3.6% have three cards, and 2.4% have more than three cards. Hence the total number of credit card holders indeed is less than 100 Mn.

Now CRED has already acquired over 11 Mn users and given its credit score cut off 750 (significantly higher than 650, minimum to have to qualify for credit cards), bringing the rest to its fold could be a near-impossible task. Even if it is theoretically possible, one simply can not afford to spend a huge amount on customer acquisition to capture the market. 

To mitigate such risks and overcome other business hurdles while aiming to attain long term sustainability, CRED has been working on five areas mentioned below:

• Building a unique portfolio of products: Instead of creating entirely new products, CRED aims to offer unique experiences by enhancing existing ones. Take, for example, the design makeover of CRED UPI during this cricket season. The cricket edition flaunted a rhodium-toned interactive skin, resembling the look and feel of a premium credit card or a designer wallet. Along with that came mega rewards for consecutive transactions and luxury drops at select locations across India to ensure that such lifestyle upgrades become valued experiences which go beyond transactions. Garage and Escapes are other additions to its benefit-first product portfolio.
• Developing multiple revenue streams: As per FY23 financials, currently 90% of its revenues come from Cred Cash or personal loans, utility bill payments, Cred Max and insurance services. The company hopes to channel new avenues of income through businesses acquired by CRED but run independently (like Kuvera), as well as from PA fees. 
• Reducing costs: CRED constantly evaluates its operating expenses to keep tabs on cash flow and stay cost-efficient. It has also handed out pink slips multiple times despite a 3.5x rise in revenue to INR 1400 Cr in FY23. Access to a PA licence will further help reduce costs.
• Building compliance and long-term trust: CRED aims to build a trusted ecosystem by obtaining licences from major regulatory bodies like the RBI, SEBI and IRDAI and strictly adhering to all compliance norms.
• Working on IPO plans: CRED is reportedly accelerating its IPO plans and may file the DRHP as soon as it reaches breakeven. An initial public offering is the best way to raise funds to reduce debt burdens, acquire target companies and pursue long-term goals. Again, a publicly traded company is trusted more by all stakeholders. However, the IPO exercise will be more challenging than it seems initially; the devil is in the details.

CRED’s Kuvera Move Will Drive Horizontal & Vertical Growth

As the UPI ecosystem evolves, fintech companies seek to generate multiple revenue streams through cross-selling. Whether it is Paytm, Google Pay, PhonePe or Amazon Pay, cross-selling has become the critical focus of these apps, leading to stiff competition.

With a vast UPI consumer base on board, every fintech platform wants to get into lending and investments to increase its revenue. But now that the RBI is zealously monitoring all lending operations, UPI platforms tend to focus on wealth management. CRED is also moving into this space, but with a difference.

“CRED faces limited competition compared to Paytm Money, PhonePe and Groww, as it aims to monetise a high-quality customer base and emulate the profitability achieved by wealth management platforms like Zerodha and Groww,” said Ankur Bansal, cofounder and director of Blacksoil Capital, a Mumbai-based financial services provider.

The acquisition of the wealth management platform Kuvera syncs well with this purpose.  

Kuvera, with assets worth $1.4 Bn+ under management for its 300K users, has become a preferred platform among India’s affluent investors. The average SIP size on Kuvera has reached INR 5K, twice the industry average, while total mutual investment amounts exceed INR 12 Lakh ($14,450), five times higher than the norm.

Kuvera, thus, fits into the CREDverse in terms of target customers and value creation. The acquisition also aims to fulfil the following short-term and long-term goals.  

• Customer acquisition beyond CRED: According to a CRED statement, Kuvera will continue to operate independently and serve beyond CRED members.  
• Vertical integration: CRED needs to cater to its users’ wealth management needs. Kuvera, with SEBI’s Investment Advisor (IA) licence, offers the opportunity to enter this segment. 
• Speed up operations: Acquiring a licensed entity eliminates the need to meet compliance requirements and undergo long waiting periods.

While the acquisitions of Kuvera and Spenny add to CRED’s curated user base, there are more advantages.

“The existing user base, which manages their credit cards and expenses via the CRED platform, may prefer to consolidate their financial activities under one roof, thereby allowing CRED to gain some mileage and catch up with Zerodha and Groww,” observed Kalindhi Bhatia, partner at BTG Advaya, a leading transactional law firm based in Mumbai.

But there is another glitch. By acquiring licensed entities, CRED may have avoided the extensive scrutiny and long wait periods involved in setting up these businesses. However, from an ongoing compliance standpoint, the platform has to follow various sector-specific regulations. For instance, SEBI regulations are there for stocks, mutual funds and financial advisory; IRDAI looks after insurance, and the RBI monitors payment aggregation, KYC and more. So, it can still be an uphill task for CRED to comply with multiple requirements from the get-go, added Bhatia.  

How CRED’s PA Licence Will Bring Value, Increase Revenue

Third-party payment aggregators are costly affairs, to say the least. PAs usually charge 1.75%-4% per transaction as processing fees, in addition to set-up costs and annual maintenance fees. 

“The payment aggregator licence will allow CRED to leverage its payment processing services for partner brands and third-party merchants. Of course, the play here lacks clarity as the PA sector is now saturated. But it will help CRED reduce external costs incurred by relying on third-party PAs as and when required,” said Bhatia.

Currently, CRED’s partner brands are responsible for paying the PA charges, as the fintech platform does not offer these services or cover these costs.

Now that CRED’s wholly owned subsidiary Dreamplug Paytech Services has been granted in-principal approval for the PA licence from the RBI, merchandise costs may likely to go down and the platform can leverage a brand new revenue channel.

“A PA licence enables direct payment processing, enhancing the platform’s offerings like CRED Pay and CRED RentPay. However, it comes with regulatory challenges, including strict monitoring and compliance, similar to what Paytm has undergone. In case restrictions are slapped on a business, they can impact innovations and product scope,” said Abhinav Paliwal, cofounder and CEO of PayNet Systems, a white-label neobanking software platform catering to new-age fintechs. 

Nevertheless, the PA licence will be instrumental in trust-building, user base expansion and brand positioning. There can also be a possible shift in branding – from ‘exclusive’ to ‘more inclusive’ – while retaining the premium service aspects, he added.

Account Aggregator Licence For Seamless Operations

To break new ground, CRED reportedly had plans to obtain an account aggregator (AA) licence via Dreamplug AA Tech Solutions. As explained, the AA framework helps simplify financial services like loans and credit facilities by providing a fast, comprehensive and transparent way to share verified financial data among regulated entities.

According to sources close to the development, the company has not applied for the AA license yet. “Our approach to licences is to apply for those that will enable us to provide a better member experience while remaining compliant with the letter and spirit of regulations,” said a company official without wanting to be named.

As CRED is now involved in business operations regulated by the RBI, SEBI and IRDAI, acquiring an AA licence is required to ensure a seamless experience across its products and services. In simple terms, an AA licence will enable CRED users to consent to data sharing without investing time and effort to provide all essential details whenever the need arises. 

“Instead, CRED’s subsidiary will enable secure financial data sharing and boost capabilities in service areas like CRED Mint,” said Paliwal of PayNet.

Pratekk Agarwaal, founder and general partner at GrowthCap Ventures, a Mumbai-based early stage VC firm, noted that obtaining these licences would strengthen CRED’s fintech portfolio and regulatory compliance. However, exploring synergies and optimising customer journeys to enhance user engagement would be essential, given its reliance on partner channels.

Bhatia of BTG Advaya underscores yet another point. With these licences in its kitty, it looks like CRED intends to validate a user’s financial credentials internally rather than relying on external agencies. Since the platform enables lending services and payment gateways, it can carry out stipulated KYC verifications and assess a user’s financial rating pretty swiftly. 

CRED Is Building The Top 1% Club; Here’s A Glimpse Of What To Expect

Popular opinions and market research data often highlight that the larger the TAM (total addressable market), the bigger the growth opportunity. However, CRED has changed tack. Instead of exploring the untapped market for humungous growth, it has been focussing on members’ requirements to build new value propositions for its curated community. 

A former CRED executive, quoted earlier in this article, concurred. 

“Take Garage, for instance. More than 70% of CRED members might own vehicles. Hence, they must analyse and understand what they spend on their vehicles. CRED has made it extremely convenient by putting all relevant data in one place. Your FASTag payments are here. You get to know the last servicing cost and how much you spend on your vehicle every month. Is your car leaking money? This is crucial as you no longer have to feed the data separately to manage your vehicle expenditure,” he added.

Similarly, there is Escapes, another feature to help members with their travel plans. Almost all CRED members travel at least twice a year. Of course, critics may say that the fintech is deviating from its business model but that is not the case. CRED is simply catering to what its members like to have on the platform, the executive said.

However, cross-selling does not always work. 

According to Bansal of Blacksoil Capital, a consumer’s preference will be the deciding factor here. For example, most users are accustomed to using traditional OTAs like MakeMyTrip or EaseMyTrip, and many will be using corresponding co-branded credit cards. In such a scenario, CRED may not expect significant cross-selling on Escapes, at least not initially. But even a small income will keep the vertical sustainable, as CRED will not acquire physical assets (like hotels) to keep it going. Instead, the platform hopes to drive Escapes engagements with rewards, vouchers and the luxury experiences it offers. 

Paliwal from PayNet assumes that CRED may attempt to cross-sell its new products to existing users and ensure that its acquired customer base uses its current offerings. (Data usage in such cases must comply with applicable privacy laws.) Presumably, the idea is to emerge as a one-stop shop for all things finance, from managing expenses to making payments to wealth management and more.

All these are for the top 1%, of course. But there could be exceptions.

Although the platform has set ‘Brand CRED’ apart as exclusive, it is now allowing certain acquisitions to run independently and making their offerings more inclusive to drive customer acquisition and build a large consumer base.

Interestingly, CRED struggled initially for keeping its offerings too limited, which did not resonate well with early users. Soon, however, it learnt to broaden its service horizon and introduced more substantial offerings, such as managing one’s entire bunch of bills more efficiently without missing a single payment date. In other words, it turned to ‘convenience’ to carve its niche despite the ‘exclusivity’ tag. Now, standing at the crossroads, is it taking a page out of its old playbook again to sprint ahead?     

“There seems to be a shift in the business approach compared to its original offering. Think of the first tagline – linked to a user’s creditworthiness. If CRED executes this phase well and becomes useful to customers [rather than being just another product in the market], its new tagline should be: Everyone must get it,” said Paliwal. 

Will There Be Hurdles Ahead As CRED Expands?

Whether it is Happay (a corporate expense management platform), or Kuvera, CRED is not only diversifying its revenue streams through multiple offerings but also allowing other brands to grow independently. This further ensures risk diversification, a necessity in a post-pandemic landscape impacted by a prolonged funding winter. 

Additionally, regulation and compliance issues continue to impact fintech platforms, and handling belligerent customers turns out to be difficult. Last year, when Happay corporate cards issued by SBM Bank (India) were unexpectedly blocked from the midnight of March 31, several users took to X (formerly Twitter) and criticised the business for its poor communication policy. However, the incident took place mainly because the bank failed to update its KYC details in sync with the RBI’s guidelines.

It did not impact Brand CRED, but it certainly revealed the kind of turbulence a fintech company might suddenly face. 

Under regulatory scrutiny, it may not be a smooth journey ahead for CRED. However, analysts believe that CRED is better equipped to tackle regulatory hiccups than Paytm, which slipped on KYC compliance. In fact, it is the sheer volume that often makes the difference. Paytm faltered trying to manage more than 300 Mn users. But for CRED, it will be just 15 Mn, a more manageable number.

Considering the impact of regulatory challenges on fintechs like Instamojo, Paytm, Slice and many others, would it also be an issue for CRED?

Bansal thinks fintechs must be ready to plug every possible loophole. “While building a fintech brand, you can’t shy away from regulators for long. It will not help the brand grow. It is only natural for CRED to seek regulatory compliance to incorporate more products and services and build user trust. Razorpay has also gone through similar cycles. So, regulatory compliance will be part and parcel of a business if it wants to be part of a new asset class. However, CRED has acquired a fresh set of businesses and managing them is easier said than done.”

As CRED strives to balance exclusivity, a broader customer base and a diversified product portfolio through strategic acquisitions, it has positioned itself as a versatile fintech company. However, the real test lies in preserving its premium brand identity while navigating the intricacies of regulatory compliance and diverse market demands.

[Edited by Sanghamitra Mandal]

Update | May 29, 2024, 13.40

The total number of CRED members has been updated based on further input from the company.

The post Decoding The CREDverse appeared first on Inc42 Media.

Bitcoin (BTC) made a stunning comeback at long last, hitting more than $73K in March 2024, soaring past its previous peak of almost $69K in November 2021 and clocking a 300% jump from November 2022, when it slumped below $20K. Given its remarkable rally, the combined market cap of the cryptocurrencies in circulation shot up to $2.5 Tn, just 10% short of the all-time high of $2.8 Tn, as per industry data.

Crypto enthusiasts across the globe are delighted. The tide has presumably turned after the 2022 downturn and a wave of bankruptcies following an elaborate scam by Sam Bankman-Fried’s FTX, the world’s third-largest cryptocurrency exchange by volume. Investors lost billions of dollars in bank-run-like situations at the time, and virtual digital assets (VDAs) appeared to be tainted for good. In the wake of the huge financial fraud, many central banks played the stern gatekeeper, safeguarding investor money from scams and manipulation.

Interestingly, crypto’s rapid rise might not have been possible without the launch of Bitcoin ETFs (approved by the U.S. SEC to ensure gains from price movements by trading ETF shares without owning the digital asset), the UK’s nod for crypto-backed exchange-traded notes (eETNs), and the phenomenal Bitcoin halving in April 2024 that would control its supply and push the price up. In fact, a few price prediction systems estimate BTC to breach $84K by October this year.

That is not to say that cryptos, in general, and BTC, in particular, have shaded their infamous volatility. By the time we are publishing this article, BTC has dropped $66K, and the flourish chart shows price fluctuations similar to standard stock markets. But unlike the previous bull run in 2021, primarily pushed by amateur traders looking to get rich overnight, the crypto market now has the imprimatur of financial regulators. 

This indicates the emergence of a mature landscape where stakeholders are ready to abide by more stringent policies and the market is no longer shunned by FIs and professional wealth managers. In the US alone, more than $7 Bn had been initially invested in new crypto products, according to Bloomberg data. The inflow will likely increase as the US Federal Reserve indicates interest rate cuts in H2 2024 and more investors turn to riskier assets for better returns.  

India Is Witnessing A Surge, Too; Will It Continue? 

In India, crypto exchanges have also witnessed a giant leap in trading volume despite existing hurdles and the absence of a well-structured regulatory framework. The latter has been a work in progress since 2021, although the country has set up a clear-cut tax structure and a well-defined registration-and-reporting framework, eliminating many of the ambiguities. This has helped build a more favourable regulatory climate, leading to a level playing field.    

According to the latest report by Hashed Emergent, a web3 venture capital firm, the country claimed the top spot for on-chain adoption in 2023 among 150+ nations, saw 1K+ Web3 startups (built on blockchain technology and user-controlled) thriving and set up more than 35 Mn crypto trading accounts on top Indian exchanges. 

India now ranks among the top five countries in peer-to-peer (P2P) crypto trading and 75% of Indian users opting for centralised exchanges (CEXs) are aged below 35, a demographic dividend no country can ignore. After all, the future can be all about decentralisation, whether it is currency or finance, and young Indians can easily leverage these benefits for a long time.

All this despite the overwhelming tax burden and the stringent regulations that India has imposed on the crypto industry in recent years. Since 2022, the country has levied a 30% tax on the earnings from digital asset transfers (including cryptocurrencies, non-fungible tokens or NFTs and more), a 1% TDS (tax deducted at source) on the buyer’s payment if it surpasses the threshold and no deduction is allowed except the acquisition cost. A person receiving crypto assets as a gift is liable to pay taxes, but a VDA loss cannot offset any other income.

The Reserve Bank of India also threw a spanner in the works in April 2018, prohibiting banks and other regulated financial entities from dealing with crypto exchanges. The Supreme Court set aside the RBI order in March 2020, but more than a dozen crypto startups had to cease operations by then.  

The latest mandate came in December 2023, when India banned nine offshore crypto exchanges citing ‘non-compliance’ with local tax and anti-money laundering laws. According to the Prevention of Money Laundering ACT (PMLA) 2002, VDA service providers must register with the Financial Intelligence Unit (FIU operates under the finance ministry), which acts as a reporting entity for the control, administration and safekeeping of VDAs.

The ban on these global platforms sent Indian users rushing to homegrown players like CoinSwitch and CoinDCX etc. In the absence of big names like Binance, Coinbase and KuCoin, Indian crypto exchanges were once again holding sway and business is booming (more on that later). 

Several exchanges such as Binance and KuKoin recently registered with FIU-India and received in-principle approval. The total number of VDA SPs has now increased to 47 and they adhere to the tax laws outlined in the Finance Act, 2022. However, the entire list has yet to be made public. 

The pecking order has also changed in recent years. Although most top exchanges remain operational, there has been a notable shift in market share. For instance, ZebPay, India’s largest crypto exchange (by users, volume) until 2018, slipped to the fourth spot in 2024. WazirX, in spite of its fallout with Binance and the ongoing probe by the Enforcement Directorate under FEMA and PMLA, it has retained the second spot (by userbase) in the Indian market. 

Inc42 spoke with nearly a dozen crypto platforms in India to comprehend the current landscape, the changes witnessed in recent years, upcoming trends and whether the industry may return to pre-taxation times.

From Recovery To Growth: The Crypto Industry In India Has Come A Long Way

Asked whether the enthusiasm around the recent surge in crypto could eventually collapse under the tax burden, Shivam Thakral, cofounder and CEO of BuyUcoin, said that the Indian crypto market went through a period of adjustment and adaptation after the tax laws came into effect in 2022 and heavily impacted the industry. Initially, these regulatory measures created uncertainties and cautious sentiment among market participants. 

“However, as regulatory clarity improved and users gained confidence in compliance frameworks, the market showed resilience and began to recover. This underscores the growing acceptance and integration of cryptocurrencies within the Indian financial ecosystem, paving the path for sustained growth and innovation,” Thakral told Inc42.

Most founders of crypto startups also believe that 2024 will mark the industry’s growth phase and may lure investors with new products like derivatives, spurring a further surge in trading activity. Even SEBI is now reportedly mulling to regulate the same. 

According to Edu Patel, founder and CEO of Mudrex, crypto trading volume in India peaked between 2019 and 2021 but saw a decline in the next two years due to three black swan events. 

Along with those came rising inflation, high interest rates (the RBI’s hawkish policy stance to keep inflation under control) and macroeconomic headwinds, leading to a global slump in trading volumes.

“However, there was a [more sustainable] surge in 2024, especially in March, when we recorded the highest trade volume. We have witnessed consistent growth ever since,” added Patel.

Rajagopal Menon, VP at WazirX, said the government’s mandate on territory-agnostic tax compliance and the ban imposed on overseas crypto majors created a level playing field. 

“Following the announcement, domestic exchanges witnessed a surge in volume. WazirX saw a 250% increase in deposits and a 100% rise in transaction value within a week. Subsequently, a few foreign exchanges have stepped forward to comply with Indian tax laws, which is a fair move,” he added.

The tax pushback initially landed local exchanges in deep trouble. According to a study released by the Delhi-based think tank Esya Centre, the heavy tax burden on all transactions of virtual assets saw a cumulative trade volume worth INR 32K Cr shift from Indian crypto exchanges to foreign ones between February and October 2022. 

Most Indian users shifted their base to international platforms like Binance, OKX, Kraken and Coinbase during that period. However, with the ban on global crypto exchanges and the inaccessibility of their apps and platforms, most active traders had no choice but to shift back to Indian platforms. 

ZebPay’s CEO, Rahul Pagidipati, also believed the second crypto rally would be more sustainable than before. “The previous crypto cycle saw a massive inflow of retail investors on ZebPay. It was primarily due to the rise in crypto exchanges and the positive market sentiment in 2020-2021.

Macroeconomic stimulus such as a reduction in interest rates during this period led to a rapid rise in participation in the financial markets sector. While the market corrected in the year 2021-22, we have seen a healthy rise in participation since then and we anticipate FY 2024-25 to be one of the best years in this market cycle,” he added.

Bitcoin Is No Longer The Big Boss Of Crypto In India

Could that be a landmark in the history of cryptocurrencies? Not globally, of course, and not right now. Bitcoin still accounts for more than 50% of the crypto market cap, and India is no exception. But a look at the major Indian exchanges (ZebPay, Mudrex, BuyUcoin and Unocoin) shows that BTC has traded at No. 2 on many occasions.

However, the price performances of the other two prominent altcoins – Ethereum and Ripple – have seen enough fluctuations and downturns. In fact, they have yet to make it to the top five most-transacted coins on WazirX.

Although WazirX did not provide year-wise details, Menon said that the top five tokens between 2019 and 2023 were Bitcoin, Shiba Inu, USDT, Dogecoin and WRX (the last one is the token introduced by WazirX).

Tether, a cryptocurrency stablecoin launched by the eponymous brand, is fiercely fighting Bitcoin. In the current calendar year (2024), the value of Bitcoin transactions on WazirX has reached $8.2 Bn, while Tether has clocked more than $7.7 Bn. Shiba Inu, Dogecoin and WRX recorded $5 Bn, $3.3 Bn, and $3.2 Bn, respectively.

According to Thakral of BuyUcoin, the Indian landscape featuring top-traded cryptocurrencies underwent significant changes during 2019-2023. In 2019, established cryptocurrencies such as Bitcoin, Ethereum, Ripple, Litecoin and Bitcoin Cash (BCH) dominated the market due to their global recognition and high liquidity. But the years that followed saw the rise of new contenders amid shifts in market narratives. 

The Hashed Emergent report still rates Bitcoin and Ethereum as the most favoured assets among Indian traders. But altcoins like Chainlink (an Ethereum token), Matic (by Polygon), Cardano/ADA and Polkadot/DOT have gained prominence due to varied preferences and the need for asset diversification.

The latter half of 2023 saw the emergence of AI and GPU-based projects particularly Fethch.ai, Render, Akashnet, Bittensor, SingularityNet. These trends underscore the maturation and the speed of building in the blockchain industry, said Thakral.

The rise of meme coins like Shiba Inu and Dogecoin in India is surprising, too. Meme ‘stonks’ gained prominence in the heady days of 2021 when the YOLO mindset (and Covid subsidies) pushed newbie retail investors towards counter-intuitive risk-taking.

But the question is: Does the Indian crypto community really think these altcoins have good investment potential? Or is it simply indulging in these VDAs based on speculative anticipation? Getting rid of BTC may not be possible just yet. Meanwhile, celebrity advocates of meme coins like Elon Musk (he promoted Dogecoin several times to push its price) may try to make them worthwhile for investors looking at less-explored assets. 

Still, routinely investing in meme coins for good returns is a far cry. Right now, it is mostly wait-and-watch for retail investors. Although hero investors in meme coins like the Roaring Kitty are back on social media (a Fortune report says), will they be able to lead crypto’s comeback season and attract more altcoin believers?

Can Crypto In India Push Past Existing Hurdles To Kickstart FY25?

The Internet and Mobile Association of India (IAMAI), an industry lobby under which the Blockchain and Crypto Assets Council (BACC) operated since its inception in 2017, initially fought and won against the RBI gag order. However, in the face of mounting regulatory conflicts, IAMAI distanced itself and dismantled the crypto body in July 2022.

Undeterred by this setback, major crypto exchanges, startups and other stakeholders across the Web3 verticals banded together to form a new entity – the Bharat Web3 Association (BWA) – in November 2022. This new lobby is not only continuing the fight for the industry but also accelerating efforts to raise awareness, set industry standards, nurture the local talent pool and protect consumers’ interests in India.

In April this year, the  BWA took a significant step by introducing a set of guidelines for listing tokens on member VDA platforms. These address all aspects of VDAs — assets tokenised on existing blockchains or units of value generated on the blockchain or other distributed ledger technology (DLT) networks.

It is important to note that tokens involved in Airdrops (unsolicited deposits in numerous wallets for marketing), NFTs and ICOs/IEOs/IDOs (similar to IPOs in traditional financial markets), as well as standard disclosures outlining associated risks, fall outside the scope of these guidelines, showcasing the industry’s commitment to self-regulation.

Although the general elections are yet to be over, the BWA has put forward its recommendations for the upcoming Financial Bill in June/July 2024. Additionally, VDA platforms are expected to follow existing operational frameworks and protocols during the token listing, including announcement dates, comprehensive project disclosures, safeguards against market abuses, technical evaluations and thorough staging and testing before public offerings. 

Among the key recommendations are: 

• Recognising the Web3 sector under startup initiatives
• Forming a task force with members from the industry for regulatory requirements
• Reducing the rate of TDS on transfer of VDAs to 0.01% from 1%
• Re-examining the flat rate of 30% applicable to incomes from VDA transfers
• Allowing offsetting of losses

When asked about the potential impact of these guidelines, Sathvik Vishwanath, the cofounder and CEO of Unocoin, emphasised that regulatory clarity and investor confidence would be the key growth drivers in the crypto space. It will not only foster innovation and entrepreneurship within the industry but also pave the way for sustainable development. In fact, collaboration between industry stakeholders and regulatory bodies is crucial to create a conducive environment for growth.

Jyotsna Hirdyani, head of South Asia at Bitget, concurred, adding that the market is poised for expansion as institutional interest continues to grow and technological innovations advance.

As the Indian crypto community strides through regulatory hurdles and embraces innovation, collaboration between stakeholders and regulatory bodies remains critical for sustained growth and development in this dynamic ecosystem.

Can crypto in India overcome the hurdles after the recent rally and a modicum of stability gained over the years? Or will it continue to struggle as roadblocks get bigger? To change the fortunes of Indian cryptocurrency firms and millions of investors, the government must make a clear-cut policy decision without dragging its feet.

[Edited by Sanghamitra Mandal]

The post Is The Indian Crypto Community Coming Of Age? appeared first on Inc42 Media.

Autonomous driving is the future, says a McKinsey report, which claims self-driving vehicles would become a $300 Bn-$400 Bn revenue opportunity by 2035.

In fact, seven out of the top 10 companies by market cap  — Apple (till Feb, 2024), Microsoft, Nvidia, Saudi Aramco, Google, Amazon and TSMC — have been actively researching autonomous driving in some capacity. 

And that doesn’t even include automobile companies such as Daimler AG, Tesla, Volkswagen and Toyota, all of whom have eyes on autonomous vehicles. Indian OEMs including Tata Motors and Mahindra Auto have stepped into the entry levels of autonomous driving. 

But there’s a big chasm between these plans and making autonomous vehicles a reality. 

“Neither the technology nor the regulations world over pertaining to autonomous driving are ready. It will take at least 5-7 years for autonomous vehicles (Level 4 & 5) to become a practical solution especially for regions outside US & Europe,” claimed Ashutosh Agrawal, director of product development (AI for autonomous driving) at Bosch. 

The German engineering giant lends its autonomous driving-related products to many companies including Daimler AG, VW, etc. Agrawal believes that the entire ecosystem still lacks readiness to pull off fully autonomous vehicles. 

For instance, Apple, having spent over $10 Bn and a decade on its autonomous vehicle project, shelved it in February this year. And Bosch’s Agrawal believes that the size of the company does not matter, but rather the focus and expertise that is needed to make self-driving vehicles a reality.

And where the need is technology, startups are likely to have the edge. Despite Nitin Gadkari, the union minister of road transport and highways, stating that driverless cars will never come to India, a slew of Indian startups such as Minus Zero, Flux Auto and Swaayatt Robots are making a buzz, even at this early stage. 

The Hype For Swaayatt Robots

While the landscape is still evolving, if you ask industry experts, there is a lot of bullishness around what Swaayatt Robots is doing. The Bhopal-based startup has showcased over 80 demonstrations so far and many believe it is close to showcasing true L5 autonomous driving. Take the below demo, for instance, which drew plenty of media buzz and comparisons between the startup’s founder Sanjeev Sharma and Tesla chief Elon Musk.

What has grabbed the attention of observers is that Swaayatt’s demos are on Indian roads and in offroad conditions, where traffic and road infrastructure are simply not on par with the US or Europe.

For context, Level 5 AVs can run on their own without any humans behind the wheel, a feat which has not yet been achieved by Tesla or indeed any major automotive company. “None of them have been able to achieve what Swaayatt Robots has showcased so far,” added Deb Mukherji MD of Anglian Omega Group.

But Swaayatt and its founder Sharma have flown under the radar, relatively speaking. And given the tall claims by industry insiders as well as the praise from public figures, we wanted to see what the hype around Swaayatt Robots is all about. 

As per the Society of Automotive Engineers International, autonomous driving is categorised into six levels, ranging from Level 0 to Level 5. Swaayatt is going for Level 5 autonomous driving, like many other companies, but it is yet to publicly showcase the full capabilities it is trying to build.

Put simply, Swaayatt has demonstrated an autonomous vehicle that’s close to Level 5 in some ways. The company claims to have already tested for over 60,000 Kms across various terrains.  These tests were conducted with a human pilot, so there is still some ways to go before the company can claim full L5 autonomy.

Over A Decade In The Making

Sharma’s journey in the autonomous vehicle space began over 15 years ago. The inception of Swaayatt Robots dates back to January 2009, when Sharma was an engineering student at IIT-Roorkee.

“I was studying electrical engineering at that time and was greatly inspired by the videos of MIT’s team at the DARPA Grand Challenge. Those videos sparked a lifelong ambition within me. Solving autonomous driving in the world’s most challenging traffic scenarios became my goal,” he told Inc42. 

He began building the mathematical foundation that’s needed for autonomous driving and research towards motion planning, machine decision-making, reinforcement learning and other branches of machine learning.

After graduating in 2011, Sharma continued his research on motion planning (the process of breaking down a desired robotic movement task into discrete and sophisticated motions) and explored algorithms to enable autonomous vehicles and robots to navigate high-traffic environments at Ariel University’s Paslin Laboratory for Robotics and Autonomous Vehicles in Israel. 

Having pursued his PhD for almost a year at University of Massachusetts, Sharma deferred his PhD plans to full time pursue the project of autonomous driving.

Between 2011 and 2014, Sharma built a strong knowledge base at global engineering institutions and his research was also published in noted journals. “It was in 2014 when I became fully immersed in this project,” the founder recalled. 

From 2015 to 2021, Swaayatt operated on a bootstrapped budget, with Sharma investing INR 80 Lakh into the company. By 2017, the company had showcased almost 36 demos. 

The Tech Powering Swaayatt

What goes into building an autonomous vehicle? It comprises sensors, high-end CPUs and GPUs, algorithms that aid in motion planning and decision-making, machine vision capabilities, as well as radars for object detection and tracking, and LiDAR tech for 3D mapping and objection detection.

Swaayatt is using a combination of these sensors — primarily cameras and LiDARs in somecases — to aid in bidirectional traffic navigation, see through dense fog, and enable off-road and night driving.  

On the hardware side, Swaayatt has used one of the most cost-effective camera technologies for abstract imaging even as most competitors including Tesla deploy the more expensive LiDAR tech. 

It must be noted that Swaayatt has, however, used LiDARs for the 3D mapping and high speed driving algorithms that allow its vehicles to navigate through dense fog.

For years, it has been claimed that autonomous vehicles won’t work in India where road infrastructure is not the best, compared to the western countries. According to the many experts we spoke to, it’s easier to ‘train’ the car using predictive algorithms in the US, UK and parts of Europe given more stringent enforcement of driver safety norms, clear demarcation of lanes and other advantages of infrastructure. 

“Our goal is to enable vehicles to navigate not only structured environments and traffic dynamics typical of Western roads but also the chaotic traffic dynamics prevalent on Indian roads. Additionally, our research aims to enable vehicles to contextually understand their environment using only a cellular camera,” Sharma clarified.

Typically, predictive algorithms fail in India due to obstacles such as stray animals, proliferation of manually-operated rickshaws and unpredictability of drivers. 

Tesla uses auto regressive reinforcement learning, which relies on a system trained on driver data, which in turn trains the AI driving model. Keeping the Indian roads and traffic in mind, Swaayatt uses reinforcement learning along with human feedback to help vehicles navigate through the traffic without a driver. Sharma claims the company has developed nearly a dozen individual algorithms so far in this regard to aid in autonomous navigation.

“We are primarily an algorithms R&D company. We engage in research across various projects in theoretical computer science and applied mathematics, which are integral to AI,” Sharma added.

One of Swaayatt’s algorithms is the Ellipsoidal Constrained Agent Navigation or ECAN. This is an online path planner that allows solving the problem of autonomous navigation in completely unknown and unseen environments, while modelling the autonomous navigation problem, i.e., avoiding obstacles and guiding the agent towards a goal.

Computation happens on-the-fly as the agent or autonomous driver navigates in the environment towards a goal location.

“The demonstration on November 15, 2017, aimed to showcase our Level 5 automation capabilities. It illustrated the decision-making framework, which encapsulates all the necessary capabilities to ensure Level 5 negotiation,” explained Sharma.

Then, there is the DGN-I, another proprietary algorithm developed by Swaayatt Robots, that simultaneously detects obstacles and segments detected elements on the road, at a speed of 15.66 Bn floating point operations per second. 

The Autonomous Competition

Besides Swaayatt, multiple Indian startups such as Minus Zero and Flux Auto have been working on self-driving capabilities. Founded in 2021, Bengaluru-based Minus Zero claims to be close to developing self-driving vehicle platform.

Y Combinator-backed Flux Auto’s core focus is on commercial vehicles such as forklifts, which it enables through an autonomous driving kit.  

Globally, companies such as UK-based Wayve could also become formidable competition for Swaayatt in markets such as the US and Europe. 

Sharma claims that what sets Swaayatt apart is that it has invented the technology that will power L5 autonomous vehicles in the future, thanks to its approach of building the full stack in-house. He also said that Swaayatt’s vehicles will be capable of navigating freely and the tech can be applied to a range of vehicles. 

Sharma insisted that Swaayatt autonomous driving capabilities can work in various challenging scenarios, both on solid roads including narrow lanes and high traffic areas, as well as off-road operations. Further, the energy consumption by Swaayatt Robots are 80% less than that of the competitors, claimed Sharma.

So far, Swaayatt has demonstrated autonomous vehicle capabilities at a relative speed of 60 Kmph, but it is capable of even higher speeds, the founder claimed, adding, “While others have showcased their technology on empty roads, we’ve tackled real-world chaotic traffic situations.”

In comparison with the global counterparts, Randheer Singh, former director of NITI Aayog said, “Swaayatt’s technology is designed for high variability in road and traffic conditions, potentially giving it an edge in environments where other systems like Tesla’s FSD or Google’s Waymo might struggle due to their reliance on well-marked, predictable settings. Waymo, however, excels in urban environment navigation and has reached Level 4 autonomy in limited areas.

Waymo generally leads in terms of navigational accuracy in its operational domains, due to extensive testing and refined sensor fusion technologies. Tesla’s FSD has faced challenges with regulatory scrutiny and reliability concerns. Swaayatt’s accuracy in diverse conditions remains a critical area for observation as they scale.”

Of course, these are still early days in the autonomous vehicle space in India and there’s no certainty around which model is best suited for success. Companies also need to continuously refine their go-to-market strategy and B2B adoption is seen as the primary channel for these early movers.

Swaayatt has also been developing its own map eliminating any dependency on external providers such as Google Maps, HERE or TomTom.

The Roadblocks For Autonomous Vehicles 

Just a few months ago, Musk said in a Twitter Spaces interaction that to make fully self-driving tech, companies have to essentially build a rudimentary Artificial General Intelligence (AGI) which is then integrated into a car. Sharma seconded Musk on this.  

“You build autonomous driving, you essentially build AGI. This isn’t just my opinion; it’s widely recognised among those who delve into theoretical science and mathematics,” he explained. 

But there are multiple challenges that need to be hurdled. This includes technological and regulatory gaps.

For instance in the state of California, driverless cars and robotaxis are allowed basis of permits basis, but the state is mulling stricter norms. This comes after a robotaxi from Alphabet’s Waymo was torched by angry members of the public after a collision with a cyclist. This followed another major incident from earlier where a robotaxi hit a pedestrian and dragged them for six metres before stopping.

A fully autonomous system has to account for all possibilities, including what pedestrians are wearing. A Google Waymo vehicle for instance, stopped, after looking at a pedestrian with a ‘STOP’ symbol on their T-shirt.  

Hallucinations on ChatGPT, Google Gemini and other chatbots are alarming, but potential incidents or accidents with driverless vehicles could cost real human lives. 

Bosch’s Agrawal said that despite having attained Level 4 autonomous driving, some of the key players went back to ‘Level 2.5’ because of the high costs involved in developing LiDaR-based systems.

Even Tesla is said to have been teaching its algorithms using LiDAR; however, the company might not install LiDAR in the production-ready AVs but would use the learnings only. 

The availability of hardware capabilities for L5 AV technology also needs to be proven. Ajesh Saklecha, cofounder of Ozone Motors and TRiDE Mobility said, “So far we have seen multiple demonstrations across the world. These were strictly in lab conditions. Can the same hardware operate for at least 10-12 hours continuously with the same set of performance?” 

And then there is the business side of things. There have been umpteen instances of startups getting the tech right but not able to sustain a business, due to failure on the go-to-market side or getting the timing wrong.

Swaayatt will need to answer these questions in the long run, but for now, Sharma is eyeing a fresh fundraise to further improve the technology that allows driving through fog and in rainy weather. The company also has plans to introduce its product in the North American market markets first, where the competition is undoubtedly high and the standards for automotives is far different than in India. 

So far, the startup has raised $3 Mn funding at a valuation of around $90 Mn. Sharma claimed that Swaayatt Robots is in advanced stages of talks for a Pre-Series A round worth $10 Mn from Indian and US-based investors. It also plans to finalise a Series A round of $1.5 Bn by the end of FY25, however, a lot has to go right before that happens. 

The first product from Swaayatt’s stables is likely to hit the market by the end of 2025, Sharma claimed. The company is targeting OEMs as well as consumers, for whom it is looking at launching an after-market accessory that can be integrated with existing vehicle models. 

According to Mukherji and others we spoke with, Swaayatt Robots will be the ChatGPT moment for autonomous vehicles as soon as it launches in the US. As for when the tech will be ready for launch in India, that’s a question no one can answer right now.

[Edited By Nikhil Subramaniam]

The post Swaayatt Robots: Is This Autonomous Driving Startup Just Hype Or The Future Of Vehicles? appeared first on Inc42 Media.

Koo, the Indian microblogging app once seen as a rival to X (Twitter), has stopped paying salaries to all its employees from April 2024 onwards citing financial constraints.

Multiple Koo employees had raised concerns about salaries being halted from April, and the company confirmed the development in an emailed response to Inc42. 

A Koo spokesperson said, “We are in talks with strategic partners for Koo. This is taking longer than expected. In order to get the partnership through we have ploughed in substantial personal funds also to meet past salaries. Salaries will continue to be paid post the conclusion of the partnership since this partnership also includes a fresh capital infusion into Koo.” 

As per sources in the company, employees were informed about the changes on a Zoom call earlier in April 2024. One employee told Inc42 there was no prior communication about the pause in salaries and no response from their managers or the HR team for questions raised after the announcement. 

Another employee claimed that no formal emails were sent to employees to explain the disruption in pay. Incidentally, Koo is stopping short of laying off employees, despite a severe reduction in headcount since 2022. 

Layoffs typically involve severance pay and in Koo’s case, the company would have had to compensate employees being let go with an amount equivalent to salary of one or two months, one employee told us.  

“There have been no new layoffs. Koo was and will remain operational. We are still in talks with strategic partners and will announce details at the right time,” the spokesperson added.

Koo’s statement added that in the interest of transparency, the news was communicated to all employees well in advance. “They’ve been extremely patient and supportive throughout our journey and they need to know. There’s nothing we wouldn’t do to help them. The most important thing for the company’s long term success is the partnership and we want to see that through. Our employees understand that. Our operations continue as is and don’t get affected by this delay,” the spokesperson added. 

Last week, Inc42 reported that the company had reduced its workforce by over 80% since June 2022, resulting in a headcount of just 60. This has now dropped further to around 50. Additionally, those employees that have been retained have seen their salaries slashed by up to 40% since October 2023.

A slew of senior employees left earlier this year, after a significant cut in their pay. “For employees having salaries higher than INR 30K, there was a salary cut of up to 40%. This was significant for many,” said one of the employees.  

Although the app will remain operational, questions are being raised about Koo’s ability to maintain the tech platform and support users.

Despite backing from notable investors like Tiger Global, Accel, 3one4 Capital, Kalaari Capital, and Blume Ventures, Koo struggled to establish a sustainable revenue model and failed to secure Series C commitments.The company has raised approximately $50 Mn to date.

With an operating income of only INR 14 Lakh and a staggering INR 197 Cr loss in FY22, the company struggled to establish a viable revenue model and heavily relied on burning cash to acquire new users. The startup has thus far not filed its audited FY23 financials.

Koo halted all customer acquisition campaigns from June 2022, leading to a decline in active users. The number of active users plummeted from 7.2 Mn in June 2023 to a mere 2.7 Mn, marking a 62% drop in the past nine months, according to data sourced from Data.ai.

Over the past year, the company has been seeking a strategic partner and exploring acquisition options. Despite months-long discussions, including potential acquihire deals, the situation seems to have taken a negative turn. According to unconfirmed reports, Dailyhunt is said to be in talks to acquire Koo.

The post Exclusive: Koo Halts Salary Payments Amid ‘Talks With Strategic Partners’ appeared first on Inc42 Media.

As Bitcoin block no. 839729 is currently being mined at the time of writing this article, we’re just a day away from reaching block number 840,000. This milestone will automatically reduce the mining reward by 50%, decreasing from the current 6.25 to 3.125 Bitcoins.

For those new to the concept, this event is known as Bitcoin halving, a pre-programmed occurrence after every 210,000 blocks, cutting the Bitcoin mining reward in half.

Since the genesis of the first Bitcoin block on January 3, 2009, we’ve experienced three halving events so far. The initial reward of 50 Bitcoins per block has gradually decreased, and post the next halving, it will further reduce to 3.125 Bitcoins per block. 

But this time around, leading up to the fourth halving in April 2024, the crypto landscape is unique. 

For instance, Parth Chaturvedi, investments lead at CoinSwitch Ventures, noted that prices surged to unprecedented levels just before the event, adding an intriguing dimension to post-halving market dynamics. The introduction of spot Bitcoin ETFs in the US has attracted institutional players to the crypto ecosystem, enhancing market credibility and stability. 

Besides this, unlike previous halvings, the current ecosystem is more mature, with increased nuances and complexities. 

Sidharth Sogani, founder and CEO of blockchain analytics firm CREBACO, believes that geopolitical events like the Iran-Israel conflict could destabilise matters. He added that the bull run, which is usually triggered by the halving event, has been triggered by the ETF approvals. So the cycle has been left-translated this time. Sogani expects the full impact to reveal itself by the end of May 2024.

The recent influx in its price underscores Bitcoin’s evolving role in the global economy, paving the way for increased demand and utility. With Hong Kong’s recent approval of spot Bitcoin ETFs, analysts anticipate a rise in global wealth managers’ exposure to Bitcoin as an asset class, particularly as investment managers look for an edge within their clients’ portfolios.

Where Will Bitcoin Price Go Next?

In a conversation with Inc42, Sumit Gupta, cofounder of CoinDCX, said that historically Bitcoin halvings have correlated with price surges. These increases are driven by a reduction in the supply issuance rate, emphasising Bitcoin’s scarcity, which in turn could drive up demand, prices, and trading activity.

The first halving in November 2012 saw the block reward decrease from 50 BTC to 25 BTC. In the year following this event, Bitcoin’s price soared from around $12 to over $1,000, marking an approximate 83x increase. Similar trends were observed after subsequent halvings. 

Following the July 2016 halving, where the reward was slashed from 25 BTC to 12.5 BTC, Bitcoin’s price surged from approximately $650 to a peak of around $20,000 in just 18 months, a nearly 30x increase, Gupta noted.

Defining the short-term impact, Jyotsna Hirdyani, South Asia head at Bitget, also pointed out that typically six to 12 months after a halving, there’s a surge in price, leading the crypto market out of the medium and long-term bull market.

“The most recent halving occurred in May 2020, reducing the reward from 12.5 BTC to 6.25 BTC. Although the immediate impact on price was less pronounced compared to previous halvings, we saw a steady upward trajectory in the following months. By early 2021, Bitcoin had reached new all-time highs, surpassing $60,000 per coin, marking a 5x increase from the pre-halving price around $12,000,” CoinDCX cofounder Gupta added.

However, this time, opinions diverged among over a dozen crypto founders and experts Inc42 spoke to, with some highlighting different trajectories this time, attributing significance to other factors. 

According to Shivam Thakral, founder and CEO of BuyUcoin, the upcoming halving could have dual effects on the Indian market: a surge in prices due to decreased supply as coins become scarcer for mining, and short-term volatility due to anticipation and excitement surrounding the event. Traders could potentially buy in anticipation of price increases.

Thakral also noted that the predicted price increase of Bitcoin may entice new investors, consequently increasing the daily transaction volume. Thakral also highlighted the potential for increased adoption by Indian enterprises to drive up daily transactions.

According to various research reports, each of the Bitcoin halvings in the past was followed by three stages — a one-year bull market,  a one-year bear market, followed by a two-year stagnation.

However, the stance of the Indian government on cryptocurrencies could potentially temper investor enthusiasm, thereby affecting both price and transaction volume. 

Will The Halving Boost Altcoins? 

Bitcoin, as the foundational cryptocurrency, has been instrumental in shaping the entire crypto ecosystem. Hence, the impact of halving won’t be confined solely to Bitcoin but will extend to altcoins and other products like future ETFs and spot ETFs.

Sogani believes that the altcoin markets will also experience an upsurge post-halving, given that Bitcoin’s dominance stands at around 53% of the total market cap. 

When Bitcoin prices rise, investor attention is solely on Bitcoin, causing its dominance to climb to 56% to 70%. However, this dominance eventually stabilises as traders start capitalising on their Bitcoin gains, divesting some profits into altcoins. 

This shift usually occurs after Bitcoin hits an all-time high. As the market has matured, this transition to altcoins can occur concurrently to a certain extent. Moreover, this trend could gain further momentum with the introduction of Ethereum ETFs, followed by potential offerings for other cryptocurrencies like Solana.

In addition to the potential impacts on altcoins, Bitcoin futures, and related products, new financial products are likely emerging in response to the dynamics surrounding the Bitcoin halving. 

Dhruvil Shah, SVP of technology at Liminal Custody Solutions, believes that just as spot ETFs launch globally, innovative financial instruments may emerge, providing investors with alternative pathways to access digital assets.

Crypto Spring In India?

Gupta of CoinDCX asserts that India is leading the charge in crypto adoption. The upcoming halving event has ignited excitement within the crypto community, prompting us to closely monitor market movements. The impact of the halving on Bitcoin’s price and daily transaction volume in the Indian market hinges on various factors, including regulatory developments and investor sentiment.

The Bitcoin halving in April 2024 will slash block rewards from 6.25 BTC to 3.125 BTC, reducing daily new Bitcoins from 900 BTC/day to 450 BTC/day. Gupta notes that this reduction may intensify competition among miners, potentially leading to consolidation as rewards decrease while operational costs remain high.

Echoing Gupta’s sentiments, Hirdyani of Bitget anticipates a surge in trading volume fueled by positive sentiment towards crypto. “With the growing interest in cryptocurrencies in the country, we may witness increased trading activity and price appreciation, especially if Bitcoin continues its global trend of reaching new all-time highs,” she stated.

In contrast to previous instances, exchanges are refraining from aggressive advertising during the IPL season. This suggests that the observed growth is genuine and organic, albeit modest. CREBACO’s Sogani added, “While we lack concrete data for India, it’s apparent that exchanges aren’t as aggressively promoting during the IPL or through traditional media channels compared to the previous cycle in 2021. Hence, while growth is expected, it may not match the levels seen in the past.”

The total Bitcoin supply is capped at 21 Mn, and it’s estimated that there will be around 33 halving events in total. The idea behind halving was to limit the supply and keep pushing the value of Bitcoin. Out of 21 Mn, 19.685 Mn Bitcoins have already been mined. 

It’s no surprise, then, that halving events has a knock-on effect on Bitcoin’s price. While the miners will have lower profitability due to fewer blocks, increased competition, and transition to renewable energy and may have to bear an estimated loss of $ 10 Bn, the current Indian crypto community is battle hardened and remains vigilant. 

Whether it’s the surge in altcoin interest, the emergence of innovative financial products, or the evolving trading landscape in India, one thing is certain: the halving’s ripple effects will continue to shape the future of digital finance.

The RBI’s CBDC is just one example for now, believes the industry. 

The post Bitcoin Halving: The Ripple Effects On Indian Crypto Ecosystem appeared first on Inc42 Media.

Just last year, Bengaluru-based Koo claimed to be the world’s second-largest microblogging platform, after X (formerly Twitter). This claim was short-lived, however, as Meta launched Threads which garnered 100 Mn users within just five days. 

Even if we overlook Threads, a look at Koo’s financials and user metrics paints a completely different picture, which is more in line with reports over the past two years about layoffs, multiple revenue experiments and growth bottlenecks.

Koo may claim to be the world’s third-largest microblogging app, but this is not an enviable third place by any means, especially because it has not resulted in any business growth.

What we can see from the numbers is that Koo has gradually receded from the social media landscape in India, and even around the world. Its product launches for Brazil and Nigeria, though initially promising, have also begun to falter.

Even through its various marketing campaigns — remember ‘Vocal for Local’?  — media collaborations, monetisation experiments such as Koo Premium and Koo Coin, and engagement efforts like daily jackpots, Koo has not made a major dent.

Plus, the startup has not taken any significant strides towards reaching milestones such as 100 Mn users by 2022, which are very vital in the social media game.

In fact, Koo has had to cut customer acquisition costs (CAC) and has witnessed a decline in active users since then. The number of active users has plummeted from 7.2 Mn in June 2023 to a merely 2.7 Mn, representing a 62% drop in the past nine months, according to data intelligence firm Data.ai. 

With a meagre operating income of INR 14 Lakh and a staggering INR 197 Cr loss in FY22, the company has struggled to identify a revenue model and heavily relies on cash burn to acquire new users. The startup’s FY23 numbers are not yet out, but we cannot imagine a major change given what has been reported in the past year.

According to a current employee who prefers to remain anonymous, the company has laid off over 80% of its workforce since June 2022, resulting in a headcount reduction to just 60 employees. Additionally, salaries for existing employees have been cut by up to 40% since October 2023.

So much so that speculation is the company is about to be acquired by VerSe Innovation. Unable to secure substantial funding after its Series B round in 2021, Koo is said to be in advanced acquisition discussions with the media company that operates the news aggregation platform Dailyhunt and video social media app Josh.

While this may not constitute a complete acquisition, sources close to the development suggest that it would involve a majority of stocks, likely in a combination of cash and stock.

Despite support from notable investors like Tiger Global, Accel, 3one4 Capital, Kalaari Capital, and Blume Ventures, Koo has faced challenges in arriving at a steady revenue model. 

So what exactly went wrong after the initial euphoria? And is Dailyhunt the right partner to steer Koo back on track —  if indeed, it can be steered back?

From Vokal To Koo

Serial entrepreneur Aprameya Radhakrishna sold his startup TaxiForSure to Ola Cabs for $200 Mn in 2015 and then teamed up with Mayank Bidawatka to launch Vokal, a platform similar to Quora but in key Indian languages, in 2017.

Despite attracting key educators from across the country and claiming to have built a community of 15 Mn users by 2020, the startup did not gain revenue traction. The startup did not manage to generate any income from these millions of users and had zero operating revenue for three straight years, leading to mounting losses.

Clearly, investors were unwilling to tolerate losses without a clear path to revenue. But by 2020, there was a renewed wave of attention for the Indian social media apps. There was a constant tug of war between the Indian government/state governments and X on multiple fronts.

Global social media giants such as Facebook and Twitter (aka X) were under fire for not complying with local regulations. Tiktok was also banned in India. 

Sensing the clear market opportunity for an Indian social media app, founders Radhakrishna and Bidawatka swiftly pivoted from Vokal to Koo and built a Twitter rival that allowed users to post up to 400 characters at once, compared to Twitter’s limitations of 280 characters at that time.

Radhakrishna highlighted the existing gap, stating, “Almost a billion people in India do not speak English. Instead, they speak one of India’s hundreds of languages. With access to smartphones increasing, they desire internet content in their own language. Koo aims to amplify the voices of these Indians.”

Amid the Covid-19 pandemic, the Indian government focussed on self-reliance or Atma Nirbharta as a mantra for all products and services, including digital ones. 

While Twitter squared off with the Indian government over many crackdowns and policies, Koo quickly gained attention, with Prime Minister Narendra Modi also mentioning the app as an iconic ‘Made in India’ product. Shortly after its launch, Koo also won the government’s Aatmanirbhar Bharat App Innovation Challenge’.

And when Twitter suspended multiple influencer accounts for policy violations, Koo became the immediate go-to alternative. By February 2021, Koo crossed the 3 Mn mark, claimed cofounder Bidawatka.

Koo: Building The Brand 

To start with, Koo went after the hot categories to start to stimulate advertisers and marketers. For example, cricketers and cricketing authorities were a major target. 

Platforms such as Koo are horizontal social media apps. Users are spread across various interest areas and communities. In such a scenario, Koo marketers faced challenges to lure advertisers. The simplest way to ensure this is to add to users and to accomplish this, Koo went after Indian celebs aggressively. Even though this meant burning cash on user acquisition, amid a competitive market. Besides this, it went after accounts that have large regional language followers.

The app initially partnered with the Tamil Nadu Cricket Association for the Fifth edition of the Tamil Nadu Premier League (TNPL). Under the agreement, TNPL provided live updates on Koo through its official handle. It added engagement features and unique contests with TNPL merchandise as rewards.

In October 2021, at the start of the T20 World Cup, Koo collaborated with Ogilvy India to launch a mega TV campaign under the tagline #KooKiyaKya.

Similar to the Ask Me Anything (AMA) sessions on X or Reddit, Koo also began hosting AMA sessions in local languages, targeting specific segments to enhance engagement. A host of celebrities and influencers also acquired stakes in Koo.

Politicians and government institutions were also big targets for Koo. It brought on ministers from the union cabinet, state governments of Uttar Pradesh and Telangana, institutions such as Central Institute for Indian Languages and several others to trigger organic user acquisition. 

Between July 2021 and July 2022, Koo organised over a dozen major campaigns to increase user numbers, engagement, and consequently attract more advertisers. It also recognised over 8,000 individuals as ‘people of eminence’ on Koo. 

In October 2022, Koo also launched a loyalty programme called Koo Coin rewarding users for spending time using Koo consistently. 

Several brands, including Groww, UCO Bank, Droom, Snapdeal, Amul, HDFC Securities, Bajaj Group, and Fortis Healthcare were on Koo running ads. But this was the golden period for apps like Koo and soon, big tech returned to dominate social media advertising.

Like platforms such as Sharechat and Trell, Koo struggled to retain advertisers like Twitter and Instagram could. 

A former senior employee attributed this to two major factors: the slowing down of digital marketing and advertising budgets by large brands after the pandemic and a relatively small user base. 

“Brands wanted to reach out their targeted segments. Koo’s user base was diverse and not concentrated as required by most of the brands. There wasn’t a specific user demographic that could dominate and appeal to advertisers across the board,” a former employee added.

Inc42 spoke to one advertiser who echoed similar sentiments about the platform. Despite the relatively low rates of advertisements on Koo, the ads themselves did not garner the expected level of attention or impressions. Koo did not establish the ecosystem necessary to attract advertisers effectively, we were told. 

From the user perspective, Koo failed to offer any competitive advantage over X. Besides advertisements, the introduction of subscription models like Koo Premium (priced between INR 6 and INR 30 per month) also proved insufficient to offset its accumulated losses.

Nishant Mittal, a serial entrepreneur who had earlier founded a social media platform Cread, points out, “The biggest issue with Koo is that it does not offer any differentiation nor it wants to be, but simply a copy of X. This could be a good college project, not a serious business to count on.”

Other analysts wondered why would brands spend more money on another platform when Twitter offered better analytics, performance monitoring and has a bigger network? This led to challenges in growth and scaling up.

Layoffs & Growth Pains

Before the ecosystem-wide layoffs in 2022, Koo had a total workforce of almost 400 people. Since then, the company has let go of employees in multiple waves and its team strength now is just 60 employees. 

So why did the company suddenly hit the brakes? Simply put, the returns on marketing and advertising spending were not good enough, leading to high cash burn and barely any growth on the revenue side.

By May 2021, the company had raised $30 Mn and then another $3.5 Mn round followed in December 2021 and another $6 Mn in December 2022.  Despite nearly $40 Mn in funding, the company was reporting merely a few lakhs of rupees in revenue.

For instance, the T20 World Cup campaign, which was very expensive, showed below-par results. Most advertisers didn’t stick to Koo over several months, which meant that revenue would dry up in certain months, one former employee added. 

The company failed to secure Series C funding commitments from investors as the financials were ‘not impressive enough,’ an existing angel investor told Inc42.

In October 2023, Bidawatka said in a LinkedIn post that Koo was caught in a sour market and had to switch its focus from growth to generating revenue. Easier said than done.

“With just six months more on our trajectory, we would have beaten Twitter in India. But we had to become more efficient by curbing expenses and start generating revenue. It takes years to build a globally competitive microblog. Even Threads, from the Godfather of social platforms, is taking time to build basic features. Over the last few years, we have invested heavily in building a microblog to global standards with very sophisticated algorithms, processes, policies and engines,” the cofounder claimed.

But this shift in focus did not necessarily move the needle.

No Revenue To Speak Of  

Whether it’s Vokal’s story or Koo, Bombinate Technologies and Radhakrishna have not been able to figure out the revenue challenges. 

For the first four years, revenue was at flat zero. In FY21 and FY22, the company registered INR 8 Lakh and INR 14 Lakh, respectively, as operating income. Even the growth rate is not impressive. No investor wants to see less than 50% growth after the first revenue year. 

Total expenses and losses simply surged exponentially by 715% and 462% respectively in the first two revenue years. 

“Look at Koo. It’s a clone of (erstwhile) Twitter. Twitter’s logo is a bird (blue & flying), while Koo’s logo is also a bird (yellow & not flying). There’s absolutely no product differentiation. None,” Mittal commented.   

Given this, how was Koo going to make a dent on Twitter’s unfathomably strong, global network effects? And forget about network effects. 

Despite being around since 2006, Twitter is itself a small business in India with INR 157 Cr in revenue (and losses of 32 Cr). Where is the TAM that justified Koo’s $50 Mn in funding and $275 Mn in valuation, Mittal wondered.

Plus things have worsened for Koo. The entire platform is currently on auto pilot, with very few employees, as per another former employee.

In the last nine months, the number of active users has been on a decline of 62% from 7.25 Mn in June 2023 to 2.7 Mn in February 2024. There are no active campaigns on the customer acquisition side, which means this decline is very likely to go on for a few more months. 

Given the lack of revenue and unjustifiable valuation, experts believe the Dailyhunt M&A, could be a distressed sale. Incidentally, this is not the first acquisition report around Koo.

A Checkmate Situation For Koo

The problem with Koo is deep but also simple to understand. Even the market is not ready to accept the alternatives. Even Threads, a formidable competition of X from Meta is biting the dust, said a former director of KPMG India. Engagement on Threads reduced by 50% after the highs of the first week, which shows that perhaps there just isn’t enough room for a Twitter rival that does the same thing.

“Even Twitter’s revenue has just gone down by 50%. However, this was precisely due to Elon Musk’s factor,” the former KPMG director said, adding that had Koo arrived a few years earlier, such as in 2017 or 2018, things could have been different.

Moreover, many of the opportunities that Koo looked to tap in the early days soon disappeared. The startup did not capitalise on the momentum it saw in late 2020 and early 2021.

When Twitter was facing government action, pro-government accounts quit Twitter to join Koo and many of those blocked from Twitter also jumped ship, but soon after taking over Twitter, Musk unblocked most of these accounts, and these users were back on X. 

A similar situation was seen in Nigeria, where the government banned access to Twitter and many Nigerians opened accounts on Koo. However, as soon as the ban was lifted, these users were back on X and their Koo handles became dormant.

Losing these organically acquired users was a big loss for Koo. The app also failed to position itself as a neutral platform, which is crucial for social media. “Despite posing an alternative to X, Koo also failed to attract global advertisers who left Twitter due to Musk’s takeover and was only chiefly targeting the Indian market,” said another angel investor in Koo.

When Koo became a sensation among users, its UI and UX were not good enough to retain those users as more active users. “Most of the users see the interface as a copy of Twitter. Despite catering to the same audience, Koo was supposed to offer a better experience whether it’s the user experience, products within. Sadly, Koo failed on both of these accounts,” the angel investor told Inc42.

The investor quoted above added that there are a few clear areas where Koo could have done better. It needed a calculated and strategic approach to growth. Just because the word ‘Koo’ is a joke in Brazil, and helped the app gain some traction, was not enough, for instance.  Secondly, Koo failed to identify areas where Twitter is weak in India, and could have focussed there for organic growth.

Can Dailyhunt Turn Koo Around?

So is an acquisition the right path for Koo at this time in its journey? Can the Dailyhunt and Josh parent company offer whatever it takes to rebuild Koo?

Back in October 2023, Bidawatka stated that Koo was looking for strategic partners. He said that the next phase for Koo is to build scale and that will happen with either funding or through a strategic partnership with someone who already has scale.

With the current reality of the funding winter, the best way forward is to partner with someone who has the distribution strength to give Koo a massive user impetus and help it grow. 

“With a platform that’s scale-ready, Koo can outshine competitors with the right push on growth. While we talk to the right partners to build this out, we urge and request our well-wishers and friends in the media to stop speculating and be patient till we have something concrete to announce. All we can tell you is that, with all these changes, Koo will be much stronger as an organization and will make all of us proud!” wrote Bidawatka in his LinkedIn post.

Multiple analysts and experts Inc42 spoke to pointed out that like Twitter, Koo and other horizontal social media apps will take at least a decade to succeed, irrespective of the strategic partnerships. 

While Koo declined to respond to specific questions around the acquisition, the company cited Bidawatka’s LinkedIn post as its statement.

VerSe has some experience on the social media side, despite Dailyhunt primarily being a news app. With short video app Josh, VerSe has been in the social media space for some time now and there is a probability that Josh could add a Koo-like experience to give its existing users new ways to interact.

However, the reality is that VerSe is also a loss-making company. Its FY23 losses amounted to a whopping INR 1,900 Cr. The company won’t even be able to break even within the next 2-3 years, by most estimates, unless there is a complete change in strategy or a big revenue-generating product. Koo is not that product, at least going by the track record.

So one might also wonder what exactly is VerSe buying? Koo is not among the headlines any more (except for the wrong reasons), the product itself is inadequate as its own investors have told us, and there is no growth to speak of. Dailyhunt and Josh have a bigger user base than Koo, they have the brands and advertisers too that Koo failed to retain. So what is the big upside for VerSe in this deal?

That’s the $275 Mn question in the case of Koo, a valuation that seems almost surreal at this stage.

[Edited Nikhil Subramaniam]

The post How Tiger Global-Backed Koo Lost Its X-Factor appeared first on Inc42 Media.

The maker of BharatGPT and one of the leading players in the Indian conversational AI space, CoRover.ai, will be shuttering its US and UK businesses to focus on India ops. Speaking at Inc42’s GenAI Summit, the founder & CEO of CoRover.ai, Ankush Sabharwal, said that the company is closing its US and UK subsidiaries to keep their focus on India for now.

Announcing the closure of its US, UK subsidiaries, Sabharwal said, “We had opened up a company in the US and UK. Today, we are closing, literally. We have requested our partners, the legal handling in this regard. While our plan is to cater to the US and the UK markets in the long term, currently, we are getting a huge demand here in India and want to prioritise the Indian market first.”

Sabharwal said this while talking about the GenAI India opportunity during a session moderated by the MD of Pi Ventures, Roopan Aulakh, on GenAI Adoption Among Startups And Enterprises.

The session was also attended by Khadim Batri, founder & CEO, Whatfix, and Souvik Sen, technical cofounder and head of engineering, Ema Unlimited.

Founded in 2016 by Ankush Sabharwal, Kunal Bhakhri, Manav Gandotra and Rahul Ranjan, CoRover.ai is a conversational AI-based startup that has built an LLM called BharatGP.

The startup offers AI virtual assistants (chatbots, voicebots, videobots) to its clients, including IRCTC, LIC, IGL, KSRTC, Indian Navy (GRSE), Max Life Insurance, NPCI, BHIM-UPI, Mahindra, and Government of India, among others. These bots can take command and respond in over 14 Indian languages. The startup claims to have a user base of over 1 Bn.

According to Inc42’s latest ‘India’s Generative AI Startup Landscape, 2023’ report, the country’s GenAI market is expected to grow exponentially in the next few years, surpassing $17 Bn by 2030 from $1.1 Bn in 2023, growing at a CAGR of 48%.

The post CoRover.ai To Shut Down Its US, UK Subsidiaries To Focus On The India Market appeared first on Inc42 Media.

Founders of cryptocurrency exchange CoinSwitch – Ashish Singhal, Vimal Sagar Tiwari and Govind Soni – have launched stock investment platform Lemonn under the umbrella brand PeepalCo.

Licensed under the name Nu Investors Technologies Pvt Ltd for stock broking services, Lemonn is the second independent company under PeepalCo after CoinSwitch. 

Lemonn is offering zero brokerage fee for three months and curated industry-based stock offerings, and aims to simplify stock investing for Indians.

Last month, Inc42 reported that CoinSwitch founders were aiming to launch an investment platform in the next quarter. 

Speaking on the launch announcement, PeepalCo cofounder and group CEO Ashish Singhal said, “Millions of Indians find stock markets complicated even today. Despite the post-pandemic growth, only about 6% of Indians invest in stock markets. We aim to bridge this gap by making stock investing engaging, informative, and effortless.” 

It is pertinent to note that CoinSwitch unveiled the umbrella brand PeepalCo in December last year to house all its business verticals.

Lemonn Plans To Disrupt Indian Investment Tech Space

Lemonn, which would take on established brands like Groww and Zerodha, currently offers only stock investment. PeepalCo aims to incorporate other products, such as mutual funds, futures and options, IPO investments, on the platform going ahead.

Lemonn is currently offering the following features: 

• Zero brokerage fee for three months and zero fees for account opening
• Curated industry-based stock offering
• A detailed glossary explaining all financial and market-related terms

Lemonn does not have an advisory licence currently and hence will not offer stock suggestions, Singhal said.

About 100 employees are currently working on the platform, housed as a separate business division with its own managing and operations teams. Devam Sardana is the business head of Lemonn and is leading the team. 

“Devam has actively worked towards the launch of Lemonn right from day one from when it was just an idea on paper to a reality now,” said Singhal. 

On Lemonn’s revenue model, Sardana said all options, including subscription and brokerage commission, will be considered. 

CoinSwitch has over 20 Mn users. While the company may advertise Lemonn on the CoinSwitch app, there will not be any data transfer and auto-KYC for the crypto exchange’s users, said Singhal.

The existing users will have to download the Lemonn app and follow the entire KYC process separately, he added.

CoinSwitch is backed by a slew of reputed investment firms, including Andreessen Horowitz, Tiger Global, Sequoia Capital, Ribbit Capital, Paradigm and Coinbase Ventures. The company has raised more than $300 Mn since its inception. It was valued at $1.9 Bn+ in its last funding round in 2021. 

Since Lemonn has been using the same funding, Singhal clarified that CoinSwitch investors will continue to hold similar stakes in the stock investing platform. 

With the launch of the stock broking platform, PeepalCo is eyeing to capture market share in India’s burgeoning investment tech market. Valued at over $9.2 Bn in 2022, the investment tech market is estimated to reach a size of over $74 Bn by 2030 at a 30% CAGR.

The post CoinSwitch Founders Launch Stock Investing Platform Lemonn To Take On Groww, Zerodha appeared first on Inc42 Media.

In spite of economic headwinds and a global funding freeze, Bengaluru remained the country’s topmost startup hub in 2023, recording 249 funding deals and raising $4.2 Bn. Delhi NCR emerged a close second, securing $2.7 Bn from 241 deals.

The slowdown took its toll, though. According to an Inc42 report, this marks the lowest funding Bengaluru startups have seen since 2017. The highest was recorded in 2021 at $22 Bn, followed by $11 Bn in 2022.

Karnataka has now adopted a support-and-collaboration approach so that startups across the state can hit their stride and bottlenecks can be removed.

In an exclusive interaction with Inc42, Karnataka IT & BT, Rural Development and Panchayati Raj minister Priyank Kharge underlined the government’s efforts beyond funding, such as providing plug-and-play infrastructure, enabling access to global markets and supporting emerging technologies.

“In the last six months, we disbursed more than INR 50 Cr as grants and supported 208 startups,” he added. 

Not the one to shy away from tough talks, Kharge delved deep into several concerns, including the water scarcity in Bengaluru, startup brain drain and more.

Here are the edited excerpts from the interview.

Inc42: You initiated many startup programmes, such as Elevate and Grand Challenges, during 2016-18. So, what’s different now?

Priyank Kharge: The challenges we face now are bigger and tougher due to significant shifts in the startup landscape. New technologies have come in various sectors, fostering innovation, and the ecosystem has matured substantially. Also, last year [2023] was challenging for the VC fraternity and we felt the lingering effects of the Covid-19 pandemic. 

Nevertheless, we see a resurgence in entrepreneurial spirit and the government must provide support. With the China narrative declining, attention is increasingly turning towards India. As a result, we have repositioned ourselves not only as an innovation and invention hub but also as a major player specialising in scaling, incubating and nurturing leadership. 

Innovation is vital, but we are also focussing on building a robust entrepreneurial foundation through comprehensive skill development initiatives.

Inc42: How would you meet funding requirements across startup stages?

Priyank Kharge: For the first time, the government is engaging directly with VCs to discuss seed capital, later-stage funding, exits and more. We already had two meetings with them and the most recent one took place a couple of months ago. During these interactions, we asked VCs what steps we should take to ensure better collaboration and support for startups. It may require bringing them together on a single platform for assessing ideas or providing mentorship and networking opportunities beyond just funding. 

We are actively working on solidifying this collaboration and expect to announce a new framework within the next few months after the Lok Sabha polls are over. Of course, we can’t compel VCs to fund our startups, but we can present these ventures, thus reducing the time it takes to gain recognition and support. 

However, our support is extended beyond funding. We offer access to overseas markets through initiatives like the Global Innovation Alliance-Market Access Programme (GIA-MAP), provide opportunities for pilot projects and have a public procurement policy in place for sourcing from startups. We view startups as partners and aim to provide a comprehensive ecosystem to support their growth and success instead of merely facilitating transactions.

Inc42: With artificial intelligence emerging as the fastest-growing technology, how would you strengthen the AI ecosystem in Bengaluru?

Priyank Kharge: Several measures are crucial for success when we consider investing in emerging technologies like AI. First, we must ensure that people are adequately reskilled and upskilled to understand AI and become employable. Second, we must set up incubation centres or centres of excellence for widespread AI utilisation and leverage the existing infrastructure wherever possible. Third, we have to look at the broader policy framework to determine where the technology is headed, what actions are being taken and whether fresh regulation is required. 

Collaboration with industry leaders and policymakers is essential here. In addition, we have partnered with the World Economic Forum to establish its only AI Centre of Excellence (CoE) in India, underscoring our commitment to industry excellence. We aim to achieve the highest standards in AI implementation by focussing on vertical-based strategies. Another example is the GIA-MAP, which helps our startups enter the global market.

Inc42: What about the competition from other startup hubs like Delhi NCR or Hyderabad? Will that hinder Bengaluru’s growth?

Priyank Kharge: Yes, other ecosystems are emerging, but Bengaluru has consistently held the top position, pioneering innovation and continuing to do so. Our agility sets us apart – no other ecosystem in India matches our pace. It is not just about the number of startups [roughly, 13K DPIIT-registered in Karnataka]. It is also about the value they bring. 

Think of the funding the startups from this state have secured. Out of the total funding raised by Indian startups, Karnataka startups account for approximately 60%. These are impressive numbers, indicating their value. Also, consider what contributions we are making to the job market and the overall valuation of the startup ecosystem. These are the metrics that truly matter.     

Inc42: Bengaluru has been grappling with challenges like traffic, floods and groundwater depletion. How would you fix these and how can startups help?

Priyank Kharge: Our primary responsibility is to address these problems, but every growing city faces these issues. Doesn’t Mumbai face traffic congestion or commuting problems? Again, Delhi grapples with pollution, high crime rates and safety concerns for women. Globally speaking, Paris, Los Angeles, Silicon Valley and others have their challenges, from flooding to homelessness and rising crime. 

The aspirational allure of cities like London and Berlin leads to rapid growth, often outpacing government efforts. However, we proactively build new infrastructure to tackle these issues, a marked improvement compared to previous administrations.

Today, Bengaluru benefits from dedicated leadership, with the deputy chief minister DK Shivakumar overseeing its development. Although challenges will persist and rise again in the future, we will remain prepared.

Initiatives like Grand Challenges and innovation at the grassroots will nurture greater engagement with nimble startups, often outpacing the government in terms of experimentation and agility. We also welcome innovative solutions from startups for addressing pressing societal issues. 

Our public procurement policy prioritises startups registered with the government or involved in various government programmes. 10% of the procurement is reserved for startups with no prior experience, turnover requirements so that we can support entrepreneurial endeavours. We pride ourselves as problem-solvers and startup customers, demonstrating a level of government engagement uncommon elsewhere.

Inc42: Amid semiconductor, AI, EV and other fast-emerging sectors, is there a specific area under focus?

Priyank Kharge: We cannot afford to look at a particular sector, as our primary focus encompasses all. Owing to the state’s overall development, the government has this broad appetite for growth across industries.

Our numbers also justify this. Karnataka accounts for 60% of biotech production and exports in India, and we have a 40% share in electronics design, 52% in tool manufacturing and 65% in aerospace and defence manufacturing. Currently, we export $4.52 Bn worth of electronic components. Bengaluru is home to one-third of the country’s tech talent and around 43 unicorns, with 47 more in the pipeline.

Given our substantial presence and massive potential across sectors, focussing solely on one area won’t be practical. Consider this. Bengaluru is the fifth largest city in AI skill availability globally and we also dominate in aerospace with 65% of India’s market share. Therefore, the government’s focus extends to every sector, supported by dedicated working groups, to ensure we capitalise on growth opportunities across the board. 

Whether AI, space technology or manufacturing for SMEs/MSMEs, we are committed to enabling growth in all areas. Our leadership history in ITeS, KPO and BPO further highlights our strong alignment with global capability centres (GCCs). Ultimately, we aim to leverage Bengaluru’s strengths across diverse sectors to drive comprehensive growth and development.

Inc42: Tell us more about Beyond Bengaluru. How have you progressed so far?

Priyank Kharge: A programme called Beyond Bengaluru has been there for quite some time. It aims to attract investments outside the state capital, do away with congestion and create value-added opportunities by setting up mini tech hubs across the state.

Unlike previous programmes, Beyond Bengaluru provides additional incentives and subsidies to encourage investment beyond the Karnataka capital. We are actively developing ecosystems and fostering specific sectors outside Bengaluru. 

For instance, in Mangaluru, we are focussing on attracting GCCs, ITeS, fintech and animation companies. In Hubbali/Dharwad/Belagavi (Belgaum), we emphasise manufacturing electronic components, ML and AI and providing incubation support. Similarly, in Kalaburagi (Gulbarga), we are prioritising skill development in sectors requiring technical skills. In Mysuru, plans are underway to set up a semiconductor industry hub.

This sector-oriented approach allows us to delve deeper into each region’s potential, hone relevant skills and attract investments. Additionally, we are committed to building the necessary infrastructure to facilitate seamless business entry and ensure a plug-and-play environment conducive to growth.

Inc42: You have been vocal about ride-hailing platforms like Ola and Uber not complying with regulatory requirements. Where are we falling short?

Priyank Kharge: The issue lies in outdated policies that must catch up with tech advancements. I am not saying that services like Ola and Uber are illegal. It is the inadequacy of existing policies to address modern technologies. 

For instance, our transport regulations date back to the 1960s, ’70s or even the ’80s, long before concepts like surge pricing, ride-sharing and aggregators emerged. The rapid evolution of technology often outpaces regulatory frameworks, leaving policies to play catch-up. 

Take AI, for example. Many countries discuss AI policies, but AI has already advanced beyond regulatory frameworks. This highlights the need for policies developed in consultation with industry experts to understand where technology is headed, determine if regulation is necessary and establish appropriate frameworks. Creating sandboxes could be essential to foster innovation while policymakers work on effective policies.

Inc42: Are you planning to create a sandbox for certain emerging technologies?

Priyank Kharge: I think we can take a more focused approach after the Lok Sabha polls.

Inc42: Unlike PhonePe and Razorpay which relocated their headquarters to Bengaluru, many founders still register their parent companies overseas and stay there. How do you perceive this trend?

Priyank Kharge: Startups are taxed more heavily in India than anywhere else in the world. This is a critical issue that the central government must address, especially if it is serious about positioning India as an innovation hub. 

It is also essential to reconsider the entire tech stack and avoid burdening any particular industry or sector. Even VCs, seed capital providers and startup founders are not advocating for zero taxation. They understand the need for regulation and taxation. However, it is crucial to recognise that startups also create jobs. Therefore, imposing excessive taxes without considering the impact could drive them away, eventually harming the innovation ecosystem. Unfortunately, this issue has not received sufficient attention.

The post Govt To Introduce A ‘Single’ Platform For Startups, VCs To Ensure Better Collaboration: Priyank Kharge appeared first on Inc42 Media.

In the tumultuous period of 2019-2020, social media was ablaze with allegations against BYJU’S, accusing the edtech giant of employing ‘predatory’ tactics and misselling. Reports surfaced, suggesting that BYJU’S utilised dubious methods while marketing consumer loans of its partners, cleverly disguised within its educational courses and bundled with Chinese tablets. 

The company faced further scrutiny for silencing critics on social media by invoking ‘copyright’ violations, which resulted in the removal of numerous posts and videos from platforms like Twitter, LinkedIn, and YouTube. 

Dr. Aniruddha Malpani, an angel investor and physician with a substantial following, found himself at the centre of the controversy, as his critical stance against BYJU’S led to the removal of his content and suspension from various social media platforms. It’s worth noting that BYJU’S was also one of the leading advertisers on these platforms.

Fast forward to June 2023, and the narrative takes an unexpected turn and it’s been a year where the company has only found itself among the headlines for the wrong reasons. 

First up is a fight against lenders who accused the company of improperly using funds and breaking loan covenants. BYJU’S retaliates by filing a counter lawsuit against its creditors in a New York Court, accusing them of adopting ‘predatory’ practices. Simultaneously, the creditors initiate proceedings at the National Company Law Tribunal (NCLT) in Bengaluru, seeking to commence the insolvency process against BYJU’S to recoup their investments.

However, the challenges don’t end there. There’s also a fight with investors on the cards. 

The company, once valued at $22 Bn, now faces a staggering 99% devaluation, plummeting to $225 Mn. Even friendly investors, once allies, turn adversaries, citing corporate governance mishandling and exiting the board. Legal troubles pile up, with the investors, Enforcement Directorate (ED) issuing a show cause notice for Foreign Exchange Management Act violations, and the Board of Control for Cricket in India (BCCI) filing an insolvency petition against BYJU’S for defaulting on INR 158 Cr after unilaterally terminating the Team India jersey contract.

BYJU’S is fighting over a dozen cases amounting to over $1.5 Bn. The question is will the right issue of over $200 Mn, which it can’t use until the High Court says so, be enough to meet the needs even in the short term? 

As the company grapples with these challenges, including cofounder and group CEO Byju Raveendran resorting to mortgaging his home to pay employees’ salaries with February salaries of some of the employees still due, the question looms: Can BYJU’S navigate through this complex legal terrain and emerge unscathed?

Investors Fighting To Oust The Founder

The unofficial war between BYJU’S promoters — Byju, brother and director Riju Ravindran, and cofounder Divya Gokulnath got official after the the representatives of Prosus, Peak XV Partners and Chan Zuckerberg Initiative resigned from the board in June 2023.

Since then, despite constituting a board advisory committee (BAC) to provide strategic advice to the CEO on matters related to the governance structure, the gap between the investors and the promoters has only worsened. 

To the extent that investors on February 23, 2023 called for an EGM and passed a resolution seeking the resignation of Byju Raveendran as the CEO. This was after BYJU’S announcement to raise $200 Mn through rights issue at $25 Mn valuation.

However, anticipating this to happen, BYJU’S had filed the petition under Section 9 of The Arbitration and Conciliation Act, 1996, arguing that certain investors, including General Atlantic, Chan Zuckerberg Initiative, MIH EdTech Investments, Own Ventures, Peak XV Partners, SCI Investments, SCHF PV Mauritius, Sands Capital Global Innovation Fund, Sofina and T. Rowe Price Associates, had violated the Articles of Association (AoA), the Shareholders’ Agreement (SHA), and the Companies Act, 2013 by calling for an EGM.

High Court, while Green signalled the EGM, put the EGM resolution on hold until the next hearing.

Speaking to Inc42, one of the advocates representing BYJU’S in the Karnataka High Court said that there are multiple grounds to assert that the EGM called by the investors on February 23 was not legal. 

For instance, the notice was not served to the promoters as mandated under the Companies Act. Secondly, as per the Article of Association (AoA) and the shareholding agreement, promoters need to be present during the EGM. 

Three days after the EGM, investors went to the NCLT, Bengaluru, seeking resolution under the Companies Act. In their petition, investors alleged:

• The rights issue in excess of the Authorised Share capital of the Company is not allowable under the Companies Act
• There are various irregularities against the Company and the matter is also under investigation before the Enforcement Directorate(ED)
• Fundraising plans via rights issue without increasing the company’s authorised shares capital violates Section 62 of the Companies Act
• The Company had committed to giving the information/documents within a period of the next five business days, however the same was not given
• No financial audit has been done for the financial year 2022-23; earlier also such audits were substantially delayed
• The company did not share information regarding financial irregularities, the ongoing ED investigation, IBC proceedings and other litigations, a direct violation of Article of Association Article 121 and 197

The Investors demanded an interim order seeking: 

• To maintain the operation and effect of the rights issue 
• Let EGM be held and resolutions passed to be accepted 
• Clarify the purpose of the rights issue and how the funds will be utilised

At the last hearing on the validity of the EGM on March 13, 2024, the Karnataka High Court extended the stay on the implementation of the resolutions passed by the investors till March 28.

It must be noted that during the EGM last month, the company’s investors passed a total of seven resolutions, including those calling for a change in the board structure of the embattled edtech giant and removal of founder and CEO Byju Raveendran, cofounder Divya Gokulnath and director Riju Ravindran from their respective management roles.

BCCI Insolvency Case Against BYJU’S 

“We’ve all grown up watching cricket, cherishing our association with the Men in Blue with immense pride. Partnering with the BCCI for the Indian Team Jersey was a dream come true,” BYJU’S Group CEO Raveendran said soon after the collaboration with the BCCI.

Nobody could deny that this was a major coup. 

BYJU’S, in August 2019, achieved the status of the official partner of Team India for the next three years, concluding in March 2022. As part of this agreement, the company’s logo adorned the shirts of Indian players across all formats for both men and women’s teams. 

The edtech giant had committed to paying around INR 4.61 Cr per match for certain matches and around INR 1.51 Cr per match for others. 

In March 2022, BYJU’S also requested an extension of the contract till November 2023 and reached a deal with BCCI at INR 457 Cr ($55 Mn). 

Beyond cricket, the company secured a contract with FIFA for the football World Cup in Qatar in 2022 at $40 Mn and signed the renowned football player Lionel Messi in 2022 as a brand ambassador for its foundation arm, despite laying off over 2,500 employees for cost-cutting reasons.

Troubles for BYJU’S began surfacing in November 2022, leading to the abrupt termination of its contract with BCCI in January 2023.

Post-termination, BCCI sent an email to BYJU’S, requesting the remaining payment of INR 158 Cr. However, even after 10 months, BYJU’S failed to comply. Consequently, BCCI filed an insolvency petition against the company under Section 9 of the Insolvency & Bankruptcy Code 2016.

Current Status: In a fresh application, BYJU’S has sought arbitration through NCLT to resolve the financial dispute with BCCI, and the NCLT is likely to pronounce the order by next week.

Prashant Shivadass, Partner, Shivadass & Shivadass Law Chambers, told Inc42, “BCCI should have gone for the arbitration first. That’s the established way, if a contract of such nature goes wrong.”

BYJU’S argued that the BCCI did not render any service post the culmination of the contract between the two parties. Thus, the BCCI’s claims of pending dues to the tune of INR 158 Cr from BYJU’S cannot be considered as an operational credit, as per sources close to the company.

The Curious Case Of The $1.2 Bn Term Loan B

How often it happens to you that you go to a supermarket to buy things worth INR 5,000 but you end up buying INR 10,000. In the case of BYJU’S, the loan shopping in the US meant, it went looking for a $500 Mn loan but instead the deal was upsized by $700 Mn.

In 2021, BYJU’S secured a $1.2 Bn loan to support its business growth needs till 2026. Investment bankers such as Morgan Stanley and J P Morgan drove this deal which had certain terms or covenants: the loan had a fixed interest rate (L+550, with a minimum interest rate of 0.75% Libor), and it was issued at a discounted price of 98.5. 

BYJU’s parent company, Think & Learn, was supposed to get a credit rating from at least two of S&P Global Ratings, Moody’s, or Fitch within nine months, failing which the interest rate on the loan will increase to L+600.

Due to the delayed financials, BYJU’S could not secure a credit rating either from Moody’s or from S&P, which set off a chain of events that compelled lenders to move courts. 

The loan was supposed to be used for various general company needs, mainly for business growth in North America and potential strategic opportunities. 

After BYJU’S failed to secure a rating, the loans by original creditors are believed to have been sold to others at 20-35% discounts.

In May, 2023, Glas Trust acting as an administrative agent on the behalf of 37 creditors sued BYJU’S Alpha, BYJU’S SPV in the US, its director Riju Raveendran, brother of Byju Ravindran in the Delaware Chancery Court for not meeting the two technical requirements as per the Term sheet.

BYJU’S could not get RBI’s approval for Whitehat Jr as guarantor nor was it able to share audit reports in a timely manner, as a result of which, the unrated loan price in the market had gone down by 35%.  

Creditors had meanwhile also removed Riju Ravindran from BYJU’S Alpha, Inc. and had made Timothy Pohl, the representative appointed by the lenders, as the sole director.

This was approved by the Delaware Court. “WhiteHat’s failure to accede as a guarantor constituted an event of default, entitling Glas to send a default notice. It follows that Glas’s and Pohl’s actions were valid unless one of the defendants’ defence succeeds,” judge Zurn ruled.

In response, BYJU’S skipped the $50 Mn as part of loan repayment in June, 2023 and filed a countersuit in New York Court.

BYJU’S in its countersuit, made a few points:

• The default claims of the creditors are ‘bogus’
• The company is ready is raise the loan rate as per the term sheet
• The creditors are using predatory tactics to make BYJU’S go bankrupt

In September 2023, Glas Trust escalated the situation by filing a fresh complaint in a Florida court alleging that BYJU’S Alpha transferred $533 Mn to Camshaft Capital Fund, a Miami-based hedge fund, with the intention of hiding the cash’s whereabouts. This case is ongoing.

When asked that Camshaft return the money to creditors, David Massey, a lawyer representing Camshaft wrote in a letter dated 4 December stating BYJU’S Alpha is a former limited partner of Camshaft Capital Fund, LP, and was never a limited partner of any other Camshaft entity.

“As such, BYJU’S Alpha’s demand for books and records is rejected because BYJU’S Alpha has no statutory right or standing to demand books and records from Camshaft Capital Fund, LP (or any other Camshaft entity identified in your letter). Nor does BYJU’S Alpha have any rights under the Limited Partnership Agreement between BYJU’S Alpha and Camshaft Capital Fund, LP, as a former limited partner with a zero-balance capital account,” the letter reads.

While the New York court and Florida court’s hearings are still pending, the creditors have now approached the NCLT Bengaluru to speed up the solvency process. The case was registered on February 22, 2024  and the NCLT has issued notice to BYJU’S. The next hearing is on April 3, 2024.

While a US bankruptcy court ordered the arrest of a hedge fund manager on March 14, 2024, for allegedly helping BYJU’S hide $533 Mn, the edtech major shot back a day later. The company accused TLB lenders of being opportunistic and building fake narratives in the media to tarnish its image. BYJU’S also claimed that the judge quashed the lenders’ request seeking the deposit of the $533 Mn with the court.

ED’s Notice For INR 9,000 Cr FEMA Violations

On April 27 and 28, 2023, the Directorate of Enforcement (ED) conducted searches and seizure action at Byju Raveendran’s residence and two of the company premises in Bengaluru under the provisions of Foreign Exchange Management Act (FEMA). 

The ED seized various incriminating documents and digital data. In a statement, the apex agency stated that the company received foreign direct investment to the tune of INR 28,000 Cr during the period from 2011 to 2023. 

Further, the company also remitted INR 9,754 Cr to various foreign jurisdictions during the same period in the name of overseas direct investment. The company booked around INR 944 Cr in the name of advertisement and marketing expenses including the amount remitted to foreign jurisdiction. 

The agency also claimed that before the search and seizure conduct, several summons were issued to CEO Raveendran, however, he is said to have remained evasive and never appeared during the investigation. 

After an initial investigation, in November 2023, ED issued show cause notices to BYJU’S and its CEO alleging violations of FEMA, 1999, amounting to INR 9,362.35 Cr. 

The company was accused of significant foreign remittances and investments abroad, allegedly breaching FEMA, 1999, resulting in a loss of revenue for the Indian government. ED had also recorded statements from CFO and Raveendran among other leaders of the company. 

And, it concluded that BYJU’S and Raveendran violated FEMA provisions by not submitting documents for imports against advance remittances, not realising proceeds from exports made abroad, delaying filing documents for FDI, not filing documents for remittances made abroad, and not allocating shares against FDI received.

After the show cause, BYJU’S also issued a statement and said that the queries in the notice are mainly technical.

The technical issues mentioned in the notice revolve around the delay in filing Annual Performance Reports (APRs) related to compliant Overseas Direct Investment (ODI) of approximately INR 8,000 Cr, resulting from a delayed statutory audit for the fiscal year 2022. 

Current Status: The ED has not filed the chargesheet yet. Meanwhile, since the show cause notice, BYJU’S has filed the financials for FY22 and has yet to release them for FY23. As reported exclusively by Inc42, the edtech giant is expected to report total revenue of around INR 6,500 Cr for FY23, 23% higher than FY22. 

An ED source informed Inc42 that the ED is looking into the details. Prima facie, there seems to be discrepancies while matching the account statements and the revenue declared. However, an official statement will be released only after it arrives at the conclusion. 

Savitri Srirangam Vs BYJU’S

In January 2024, Savitri Srirangam had filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 citing a lease deed dated November 24, 2021. 

As per the lease deed between Srirangam and BYJU’S, a property spread in 840 sq yards belonging to the former was leased out to BYJU’S for a period of five years and was set to expire on November 23, 2026. The lease had a lock in period till July 23, 2023.  

Srirangam had sent an email dated April 6, 2023 asking BYJU’S to vacate the premises after the lock-in period that is by July 24, 2023.

Thereafter, on July 27, 2023, another reminder was sent. However, BYJU’S declined to vacate the premise stating that it had not defaulted on any contractual obligations and that the matter ought to be referred to arbitration.

Matter will now be heard on April 1, 2024.

Fab Hotels vs Think And Learn Pvt Ltd

BYJU’S has even defaulted on its travel subscription agreement. 

In November, 2023, Fab Hotels had filed a petition under the Arbitration Act in Delhi High Court seeking to appoint an arbitrator to adjudicate disputes arising between Fab Hotels and BYJU’S. Fab Hotels had earlier sent a legal notice to BYJU’S on July 20, 2023 to make payment for the sum of INR 21.74 Lakhs and interest thereupon. 

However, BYJU’S didn’t respond to the legal notice. 

Hearing the case on January 9, 2023, the Delhi High Court referred the case under the aegis of Samadhan, Delhi High Court Mediation and Conciliation Centre. The Court ordered the parties to appear before the Centre. If the dispute is not resolved through mediation, the case will be handed over to the Delhi International Arbitration Centre of the Delhi High Court. 

Karnataka State Employees Union Vs BYJU’S

The timeline traces back to October 2022 when the Karnataka State IT/ITeS Employees Union (KITU) lodged an industrial dispute against the BYJU’S management, accusing them of pressuring employees into resigning.

According to KITU general secretary Sooraj Nidiyanga, BYJU’S allegedly used intimidation and coercion tactics to compel its employees to resign.

KITU has formally raised the industrial dispute with the Deputy Labour Commissioner, Bengaluru Division-2, seeking the reinstatement of the dismissed employees along with their back wages, continuous service, and associated benefits. The union has issued a call for solidarity among all IT/ITeS employees to support their cause.

In September 2023, The KITU filed a petition under the Industrial Disputes Act in a Bengaluru District Court.

Surfer Technologies Vs BYJU’S

Not just Fab Hotels, BCCI, BYJU’S defaulted on a slew of vendors too. Surfer Technologies, a company that helps companies by generating leads for them, claimed to have not received INR 2.3 Cr due from BYJU’S.

On January 9, 2024, Surfer Technologies filed an insolvency plea with NCLT praying to order BYJU’S return the INR 2.3 Cr, as admitted by BYJU’S. 

Teleperformance Vs BYJU’S

BYJU’S has allegedly also not paid INR 3 Cr to another vendor France-based Teleperformance and terminated the contract unilaterally. Teleperformace was working closely with BYJU’S India for various customer service functions and sales operations. According to reports, it also helped the edtech major to onboard new students for courses. 

The French company also filed an insolvency petition on November 4, 2023 and was registered on January 25, 2024.  

Can BYJU’S Survive The Legal Battle? 

What started as delayed financial audits went on to become a big issue in terms of corporate governance and plenty of concern around what will happen to the company which was once the poster child of Indian tech startups. 

The question is can BYJU’S investors really shy away from all the wrongdoings that occurred at BYJU’S? Can the entire blame be put on CEO Byju Raveendran and the higher management? 

It must be noted that investors on the company board exited only when the ship hit the rocks, and as some sources have indicated to us, this was largely to avoid liabilities that come with having invested money in a company which is suspected to be hiding facts and figures. 

Investors on the board were supposed to alarm the founders in time if the business was going off track, but instead they let the company go haywire and secure loans without a concrete plan. Many of them continued to invest again and again despite lack of disclosures on the companies part, which has  now turned into litigation. 

Another investor in the company told us that Raveendran did not share most of the issues with the board. There was hardly any transparency. As per the article of association and SHA, the company was bound to share the details pertaining to ED raids, MCA notices and delay in financials, for instance.

Besides this, they have raised other red flags such as defaulting on loan covenants and investing $534 Mn in a hedge fund where the company is the beneficiary.  “We were told things like it would happen soon or that issues, if any, will be sorted out. The management promised financials will be out soon or that they are being delayed because of ongoing acquisitions. There were a number of excuses.”

Corporate governance, a critical aspect for any company, was clearly compromised in BYJU’s aggressive expansion phase. 

The emphasis on hyper-scaling, extensive advertising, and multiple acquisitions without a robust governance framework has directly led to the current predicament. The lack of oversight and checks on the company’s trajectory has led to financial mismanagement and legal entanglements. Here, investors cannot wash their hands off their responsibilities either, despite claiming that the company was dishonest in its disclosures. 

The many legal skirmishes threaten to end the journey and promise of BYJU’S. The response to these legal battles and the leadership’s ability to navigate the complex terrain will shape its future. The ED show cause notice and the fight with government authorities adds another layer of complexity.

Even as cofounder and CEO Raveendran has claimed to have resorted to personal sacrifices to meet payroll obligations, the fate of BYJU’S hangs on its legal disputes and not its business or innovation. 

[Edited By Nikhil Subramaniam]

The post BYJU’S In A Legal Web: Can The Edtech Giant Fight Off Bankruptcy Risks, Angry Creditors? appeared first on Inc42 Media.

Days after CoinSwitch became the first Indian crypto platform to hit 20 Mn registered users on its app, the founders have revealed plans to launch an investment platform for retail investors by June 2024.

Speaking with Inc42, cofounder Ashish Singhal said, “Currently, we are doing beta tests of these products and hope to launch these products in the next quarter.” 

“…we will be able to showcase what we have learned in the last few years, solving for the stock market, mutual fund, or any other product that we will be launching next quarter,” Singhal added.

Founded by crypto traders and ethical hackers Ashish Singhal, Govind Soni and Vimal Sagar Tiwari in 2017, CoinSwitch is backed by a slew of reputed investment firms, including Andreessen Horowitz, Tiger Global, Sequoia Capital, Ribbit Capital, Paradigm and Coinbase Ventures. The company has raised more than $300 Mn since its inception. It was valued at $1.9 Bn+ in its last round in 2021. 

The crypto unicorn unveiled its umbrella brand, PeepalCo, in December last year to consolidate all its business verticals to foray into the wealthtech space. 

Highlighting the strategic significance of PeepalCo, Singhal said that the move will help them transition from a single-product company to a multi-product company. 

PeepalCo Includes:

• CoinSwitch and CoinSwitch PRO
• A soon-to-be-launched platform featuring new investment classes — mutual funds, equities,
• A wealth-management division catering to High Net Worth Individuals (HNIs)

Thus, whether it’s CoinSwitch, CoinSwitch Pro or its foray into the Indian equities, mutual funds and HNI wealth management space – all verticals will be housed under one corporate brand — PeepalCo.

According to Singhal, the new umbrella structure has been designed to unlock the full potential of the organisation and align the company’s resources more effectively.

At the group level (PeepalCo), Singhal has assumed the role of Group CEO, while Tiwari and Govind have assumed the roles of Group COO and Group CTO, respectively. Each business segment will be led by independent business heads.

Besides, CoinSwitch Ventures, currently overseen by the PeepalCo Group leadership, will be merged with PeepalCo later. However, this will not have any major impact on CoinSwitch’s core functionality and offerings, Singhal added.

Taking On The Existing Players & Sailing The Regulatory Maze

In the Indian market, whether it’s investments in equities, mutual funds or other asset classes, there’s already a plethora of players, which range from established legacy institutions like banking groups to rapidly emerging tech companies like PhonePe and Paytm Money.

In such a crowded landscape, how does PeepalCo plan to compete with well-funded and rapidly growing tech players?

Singhal illustrated their approach with a crypto analogy. He highlighted that neither they were early entrants in the crypto space nor well-funded, and despite this, they became one of the largest crypto players in the country.

“Crypto was our initial focus because we had years of experience in the field and had already developed solutions tailored for Indian retail users, making their experience simple and accessible. While addressing crypto, we expanded our scope to include other asset classes. We observed that existing platforms were user-friendly, yet a significant portion of the population, less than 3%, invested in fixed deposits. Users lacked guidance on when to enter or exit investments, and existing platforms didn’t address this effectively,” Singhal explained.

He emphasised that the decision-making processes in the industry are currently flawed and need to be addressed, and this is what PeepalCo Group aims to resolve.

Entering the mainstream investment and wealth management market requires PeepalCo to obtain SEBI’s licence. However, it’s still uncertain whether the company has applied for a new licence or plans to acquire a company in the segment to pursue its wealthtech ambitions.

Regarding concerns about regulatory issues, particularly given past skepticism from regulators about companies associated with crypto, Singhal explained, “We are adopting a strategy similar to other players in the industry — creating independent companies and operating them separately from each other. Just as PhonePe and Paytm have done, we are establishing separate entities with dedicated teams to manage different asset classes and apps, thereby avoiding any overlap.”

Meanwhile, the strategic shift of the founders towards the wealthtech space has come at a time when the future of crypto in India seems bleak. For one, the Union finance ministry isn’t too keen on promoting crypto in the country, and the message is loud and clear in the form of a 30% crypto tax and a 1% TDS on transactions above a certain threshold. 

Amid adverse regulatory sentiments, CoinSwitch’s expansion and restructuring is seen as a prudent move by many. However, the company’s decision to step into uncharted territories to take on behemoths like Zerodha and Groww may take some time to yield results.

The post CoinSwitch Founders To Launch Investment Platform By June appeared first on Inc42 Media.

Paytm is caught in an unprecedented crisis and if it seeks a journey to emulate, the fintech giant should look no further than Uber. 

In May 2019, Uber — once valued at $120 Bn by Wall Street analysts — suffered the largest first-day dollar loss in US IPO history. Its value plummeted to about $69 Bn, just over half of its lofty IPO expectations.

Then, the Covid-19 pandemic hit and dented Uber further. It closed offices worldwide, including its Mumbai and Los Angeles support offices, and fired more than 7,000 employees globally, including 600 in India. Another 200 Indian employees were then let go as the cutbacks continued in the aftermath of the pandemic.

Fast forward to 2024, Uber has turned profitable, generating over $1.9 Bn in profits worldwide. The company is standing tall at a $160 Bn market valuation.  

In India, the company anticipates reaching breakeven by year’s end, thanks to a clear roadmap for the market. More than anything, Uber has figured out a place for India in its global business. 

Having previously lost its ground in China, India has become the critical battleground for Uber. Establishing its first and largest engineering centre in Asia in Bengaluru, Uber is developing products in India, tailored for global consumption.

If ride-hailing arch rival Ola, being a home-grown startup has been counting on the PM Modi-led campaign AtmaNirbhar Bharat or  “Vocal for local” campaign, Uber is countering the narrative with its Indian tech and engineering team, and a “Local for Global” approach.

Even global CEO Dara Khosrowshahi called India “the gateway to the world” for Uber on his recent visit, where he also raised some eyebrows with his comments on the price-sensitive Indian market. 

But as Ola looks to improve its mobility game, and in the face of competition from Rapido, BluSmart, Red Taxi, Namma Yatri and others, what’s Uber’s strategy for India’s rapidly evolving market? 

Uber’s playbook for India hinges on green mobility, digital public infrastructure, and partnerships with industry giants. Each of these is a critical pillar for Uber to make the most out of its investment into India in the long run. 

Building The Green Ecosystem From The Scratch

The Indian automobile industry as well as the government has set targets for transition from internal combustion engines to electric vehicles with 30% EVs on the road by 2030 for passenger vehicles and 70% for commercial vehicles. 

As they push towards this target, OEMs such as Tata and Mahindra have set EV sales targets and so has Uber. While in the US and Canada, Uber has aggressively set the transition deadline of 2030, it is looking to deploy a full EV fleet in India by 2040. 

This might seem like an ambitious target, but it also shows Uber has long-term plans for India. 

To start with, Uber has launched Uber Green in Delhi, Mumbai, and Bengaluru. The new business allowed passengers to opt for all-electric, zero-emission vehicles through the app, marking a significant step towards on-demand EV mobility in India. 

Through strategic partnerships and initiatives, Uber is not only tripling the number of electric vehicles on its platform but also connecting millions of riders with electric rides annually, earning recognition from the Science Based Targets Initiative for its science-based emissions reduction targets. 

To bolster EV growth, Uber is expanding its fleet partner network. Collaborating with Lithium Urban Technologies, Everest Fleet Private Limited, and Moove, 25,000 electric vehicles will be deployed across seven major cities, accelerating the transition to electric mobility. This effort builds upon previous partnerships, such as the MoU with Tata Motors in February.

In the two-wheeler segment, Uber has partnered with Zypp Electric to deploy 10,000 electric two-wheelers by 2024 under the UberMoto category, enhancing sustainable mobility options. Already, over 1,000 Zypp Electric two-wheelers operate on UberMoto in Delhi.

To facilitate EV adoption, Uber has inked an MoU with the Small Industries Development Bank of India (SIDBI), making INR 1,000 Cr in low-interest loans available to fleet partners for EV and CNG vehicle purchases.

Furthermore, Uber is spearheading EV charging infrastructure development. Partnering with BP pulse and JioBP, as well as GMR Green, it aims to provide high-speed charging facilities for Uber EVs across India.

With big players like Uber entering India’s EV ride-hailing market will create a long-lasting positive impact on clean mobility and a big boost to the infrastructure. Speaking to Inc42, serial entrepreneur Ajesh Saklecha, cofounder of Ozone Motors and Tride Mobility said that one of the biggest issues with EVs is that driver-partners may face financial constraints however, with fleet operators and Uber entering the segment, the initial cost could be easily tackled, including the fast charging infrastructure they are setting up.

“Once the issue is tackled, the lifetime cost of the vehicle could easily be earned back within two years increasing individual drivers’ income & ROI since the average running cost of the vehicle is INR 1 per Km, for the operators it could vary INR 3-5,” said Saklecha.

Saklecha’s Ozone Motors is an E4W OEM that developed an agile and affordable Modular born smart electric platform that could fit a body style of a four door Car, seven seater shuttle or even cargo ev.

Building On India’s Digital Public Infrastructure  

During his recent stop in Bengaluru, CEO Khosrowshahi oversaw Uber’s partnership with the Open Network For Digital Commerce (ONDC). 

The digital commerce network offers a set of specifications designed to foster open interchange and connections between buyers, platforms, and sellers. While ONDC has brought on Namma Yatri, Ola and others as mobility partners, Uber is the latest major player to come on board. 

Like UPI, ONDC is the latest piece of India’s digital public infrastructure and Uber is looking to capitalise on the DPI wave for its next leg of the India journey. 

Ola joined ONDC last year, initially to test its food delivery services for select users. On the other hand, Uber is exploring the full gamut of mobility services ONDC can unlock.

This collaboration would help Uber gain more users by improving the availability of Uber services on ONDC buyer apps. From the point of view of competing with Indian ride-hailing companies, this is a cost-effective strategy. 

Plus, it helps Uber gain a share of the public transport usage in the world’s most populous country. For instance, in multiple cities, it has already integrated public buses on its app, and ONDC is the pipeline to get into other states and cities as well. 

Uber is thus considering new services like intercity bus and metro rail ticket bookings in India through a partnership with ONDC.

Explaining how Uber could leverage India’s DPI, CEO Khosrowshahi told Infosys chairman and Aadhaar architect Nandan Nilekani in a fireside chat that payments and UPI  was the first step. 

UPI Lite, which is like a predefined wallet linked to UPI accounts for low-ticket purchases would make the transactions more seamless and easier. According to reports, Uber is also planning to introduce Uber Money to India. The idea is to float similar products like Ola Financial does for Ola Cabs. Besides, Uber Money could also offer co-branded credit and debit cards.

Secondly, the digital KYC verification system is both for drivers as well as for car registrations. Driver verification has become more efficient through Aadhaar KYC and Digilocker, reducing verification costs for both drivers and vehicles. 

Thirdly, the widespread adoption of FASTag on highways has minimised the waiting times at toll gates, and improved the efficiency of intercity and intracity movement, which Uber has leveraged for newer services. 

Fourthly, the integration of AI in Indian languages means that driver and rider communication has improved. 

As for the ONDC framework, Khosrowshahi believes the network offers a standardised platform for services, ensuring interoperability and accessibility for all players. 

Nilekani also suggested that Uber should re-enter the food and grocery delivery segment in India via ONDC. “The system is waiting for who could do it at scale and speed. And, you guys do it very well,” remarked Nilekani.

But while that may not be on the cards any time soon, Uber is focussing heavily on building financial services and its tech stack in India. 

Forging Big Partnerships

When it comes to long-term expansion in India, Ola plans to go solo as far as possible with Ola Electric and its inhouse infrastructure for charging and manufacturing. However, Uber is busy forging big partnerships. This includes deals with Tata, Reliance and Adani, the three biggest corporate houses in India.

Uber-Adani: During his India trip, Khosrowshahi has also explored a potential strategic partnership with Adani. This collaboration would entail integrating Uber’s services into the Adani One mobile app, enabling customers to book airport transportation conveniently.

According to reports, Uber and Adani could forge a JV to speed up the green infrastructure around mobility. This includes plans to procure electric vehicles and brand them under its name. These branded vehicles will then be deployed on Uber’s ride-hailing platform.

Uber-Tata Partnership: Besides having ordered 25K vehicles worth around INR 300 Cr, Uber is also said to be in talks with Tata Digital for the Tata Neu platform. Tatas are reportedly looking to integrate Uber app within the Superapp to anchor customer acquisition and engagement. Uber has also onboarded Tata AIG for the insurance of its driving partners as well as riders.

Uber-Reliance: Uber has a global mobility agreement with BP pulse which will also be enforceable in India in partnership with JioBP for fast-charging Uber EVs and also tying up with GMR Green to further enhance the changing infrastructure network for Uber EVs. 

“Besides, Adani’s which is yet to be formed, most of these partnerships are generic and there is not much to be expected from them. For instance, before Tata Digital and Uber, a similar partnership was announced between Jio Money and Uber. It didn’t work. While Uber has been open to forging partnerships, particularly in India, most of these didn’t turn as projected,” said a mobility advisor who did not wish to be named.

Here it must be noted that partnerships do not always align and germinate as intended or signed initially. Uber’s partnerships with Yulu, Bajaj and Mahindra did not exactly fall in line as initially envisioned, thanks to Covid.

Some of the partnerships such as with Tata Motors, JioBP and Adani could go well beyond the Indian market as well, but it’s critical for winning in India.

Why Uber Wants To Win In India

In the fireside chat with Nilekani, Khosrowshahi said, “India is one of the toughest markets out there. The Indian customer is so demanding and doesn’t want to pay for anything. If Uber can make it in India — and I think that our team is making some great things here — then India is the gateway to the world for us.”

The company’s Bengaluru and Hyderabad development centres handle 13 critical technology functions for Uber globally, including the Rider app, Uber Eats, Uber’s fintech risk and payments solutions, the maps services and solutions, Uber for Business, adtech and more. 

Will the Uber India team move the extra mile to offer Uber Pay as its own UPI payments and wallet, as Ola does with Ola Money? The company did not respond to this. 

Now, with ONDC and Uber Green, Uber sees its India playbook contributing to its global business. “If the product works in India, it will work in other developing markets as well.”  

While India is the tech playground for Uber, it’s also shown signs of becoming a breakeven market.

While globally, Uber has turned profitable raking almost $2 Bn in profits, in India it recorded INR 311 Cr in loss in FY23, slightly higher than INR 216 Cr in the previous year. But this is still lower than the loss it suffered in FY21 soon after the pandemic. 

Operational revenue surged by 6.5x to INR 2,666 Cr in FY23, which shows the company seems to be on the right track. 

And while Khosrowshahi did not respond to Nilekani’s remarks about Uber Eats, selling the business to Zomato seems to be paying off for Uber India. 

In January 2020, Uber India sold UberEats business to Zomato in an all-stock transaction, which gave Uber India 9.99% ownership (preferred shares) in Zomato.

In July 2021, Zomato listed publicly and by December 2021, Uber India was sitting on an unrealised gain of $991 Mn on this investment. This has now grown to $1.3 Bn as Zomato’s share price has boomed in the past three-four months.

While UberEats seems to have been a missed opportunity, ONDC opens the door for Uber to take another punt at food and grocery delivery. In fact, ONDC can enable Uber to become the everything app for Indian internet users. 

Uber took a long while to figure out what India means to the company, but it looks like eventually it has managed to do that.

[Edited by Nikhil Subramaniam]

Update: March 12, 2024 | 10.47 AM

[The story now incorporates a graph detailing Uber’s financials.]

The post Uber’s Playbook For India appeared first on Inc42 Media.

Despite being an early bird in the Indian mobility space, Ola Cabs has been a laggard in the emobility race. What went wrong, and why has this ride-hailing juggernaut’s green mobility dreams been full of twists and turns? Well, to understand this, let’s start from the very beginning. 

The founder and CEO of Ola Cabs, Bhavish Aggarwal, first unveiled his plans to introduce electric vehicles (EVs) to his fleet of taxis in May 2017. For this, the company infused INR 50 Cr to deploy 200 EVs in Nagpur and set up four charging stations for the new fleet. Seven years on, the company has yet to make any major headway in this direction.

While Aggarwal incorporated Ola Electric, which is pushing for a nearly billion-dollar 2024 listing, in 2017, the entire project of getting an electric fleet for its ride-hailing business has turned out to be a drag, at least from the very look of it, as there is no trace of crossing any milestone so far.  

In late January 2024, the company yet again decided to flip the script and announced the deployment of 10,000 electric two-wheelers in Bengaluru, Delhi, and Hyderabad in the next two months. The company purchased 8,000 E2Ws from Ola Electric for the pilot, which kicked off in Bengaluru in September 2023. 

However, beyond this push, there is little to no clarity on Ola Cabs’ emobility ambitions, even though its competitors in the green mobility realm are seen making significant strides across the country.

Take Uber India for example. The company forayed into the EV space only in 2019. From there it made strategic alliances with many EV fleet providers to deploy EVs across top cities. Not just this, Uber India also has a collaboration with Zypp Electric for the deployment of 10,000 E2Ws by 2024.

At a time when Ola Cabs has yet to ply its EV fleet, newer players like BluSmart, Evera Cabs, and Snap-E Cabs already have a fleet of 7K, 2K and 1K, respectively, green vehicles running in various Indian cities.  

Ola’s Failed ‘Mission Electric’ 

A year after announcing its first ambitious stride towards the green mobility market, Ola launched “Mission: Electric” on April 16, 2018. This time, the ride-hailing major proclaimed to deploy 10K E3Ws in the next 12 months and ply a million EVs on Indian roads by 2021.

At the time, the company also pledged to collaborate with driver-partners, cities, vehicle manufacturers, and battery companies to make sustainable technologies cost-effective and viable for daily mobility.

Well, the ‘mission’ never saw the light of day, and the Ola Mission Electric’s web URL (https://mission-electric.in/) has been redirecting everyone to the Ola Electric website since 2022.

In January 2023, Ola Cabs again announced the deployment of 10,000 EVs on its ride-booking platform. It was said to be in the final stages of rolling out another pilot, but the company failed to walk the talk yet again.

Cut to January 2024, with Hemant Bakshi at the helm as the CEO, Ola is back with its emobility ambitions. However, the spark seems to be missing.

Well, Ola has yet to come up with a deadline to go all-electric. Responding to a press query related to the green mobility timeline, Bakshi said, “I hope very, very soon. What that means is we are not in a position to, you know, yet work it out.”

While the failures of the past are likely to have changed some of the optimism, the uncertainty in Bakshi’s tone could as well be due to the growing competition in the green mobility space.  

Rivals Seize Ola’s Lost Opportunity

While Uber and Ola dominated the ride-hailing market, the slower pace of Ola’s transition to electric mobility could also be attributed to increased competition in that particular segment — apart from this one instance when an early bird (Ola) failed to get any worms.

Many of these platforms emerged after Ola’s failed electric mobility punt in 2018 and decided to double down on becoming electric-first to differentiate themselves from Uber and Ola. 

For instance, BluSmart, founded in 2019, has been able to grow its fleet of E4Ws in a short span. “We have grown from 2,000 cars in Q3 FY23 to close to 6,000 in Q3 FY24,” the company’s cofounder Anmol Singh Jaggi told Inc42 in January this year. The Delhi NCR-based company aims to have 10,000 electric vehicles by the end of this year. 

Besides BluSmart, several other rivals in the EV ride-hailing space have cropped up in the last few years. Everyone realises that Uber and Ola will go through some transition pains as they move to EVs and many are seeing it as a whitespace. 

The growing competition is not about to ease up. Even Ola’s long-time rival Uber realises this. 

While Uber plans to transition to all-electric fleets in the US, Canada, and its other primary markets by 2030, it has set a more relaxed deadline of 2040 for the rest of the world, including India. Despite this, Uber has been quick in introducing Uber Green in India.

Without naming anyone in particular, Ola Cabs CEO Bakshi at a press conference in January said, “Someone mentioned to me that one of our competitors has a category called Green, featuring small green cars. However, we don’t want to limit ourselves to a single category. Our entire system should be green, as we aim to electrify across all segments.”

Notably, Uber has been addressing various challenges in India’s EV charging infrastructure since 2019. 

Starting in partnership with Lithium Urban Technologies, Uber India has partnered with Tata to acquire 25,000 electric four-wheelers by 2025 and collaborated with Zypp Electric to deploy 10,000 electric two-wheelers. 

For E3Ws, Uber has joined hands with Mahindra and Sun Mobility for battery-swapping infrastructure. Additionally, the company has an agreement with SIDBI to provide INR 1,000 Cr financial support to fleet partners for purchasing EVs and CNG vehicles.

In June 2023, Uber led a $20 Mn funding round for Mumbai-based fleet-management company Everest Fleet, which claimed it would look to accelerate the transition from a CNG-dominated fleet to electric vehicles in the next five years. Everest Fleet aims to have 10,000 electric vehicles by 2026 as part of its overall fleet, and the startup is a key channel partner for Uber in terms of acquiring EVs for Uber Green.

More recently, reports claim the Adani Group is seeking a strategic partnership with ride-hailing major Uber to roll out its electric passenger cars. Under the proposed partnership, Uber’s services will be brought under Adani One, which offers cab bookings with Uber integration.

What’s The Plan, Ola? 

Responding to queries about Ola’s green mobility initiatives, cofounder Aggarwal in his January press meet stated, “Whatever we do, we do it big.”

And Ola Electric appears to have come in handy while powering the ride-hailing major’s “big” ambitions.

“From Ola Mobility’s perspective, I think we are in a privileged position because we are closely connected to the largest EV manufacturer in the country. We can help design vehicles that suit our needs,” Bakshi said.

Buoyed by the acquisition of E2Ws from the EV major, Ola Cabs has been able to rapidly electrify a part of its fleet. When the company launched ebikes in Bengaluru in September 2023, it offered services at nearly 30% cheaper rates than its peers. What helped even further was Ola Electric’s products, which offer a better range than the prevailing market average and that too at a lower price point.

“This resulted in a significant 40% market expansion in the category within three months… Additionally, we’ve established 200 charging stations in Bangalore to serve our fleet,” Aggarwal had said in January 2024.

Despite having the Ola Electric-edge, the cab aggregator is still “open to partnering with other OEMs as well if they offer a better deal.”

With an eye on the horizon, the company also plans to move beyond two-wheelers, adding electric three-wheelers (autorickshaws) and cars to its fleet. There are even plans to launch ebuses.

And, there are solid reasons to this approach. For one, Ola Cabs believes ride-hailing opportunities in E2Ws and E3Ws segments are 8X and 3X more in comparison to E4Ws. In addition, the initial cost for E2Ws and E3Ws is lower than the E4Ws. Thus, the idea is to capture a big chunk of the ride-hailing market at a lower cost.

“Despite the higher initial cost in comparison to ICE vehicles, the RoI will be much faster as the uses will be much more,” Dr Allabaksh Naikodi, former head of EV, Royal Enfield told Inc42.

“However, the E2Ws need to be equipped with better cooling systems like GrafX (Graphite + PCM) to enable faster charging to be served for commercial purposes.” In commercial applications, even for E4Ws, RoI could be recovered within 2-3 years, Dr Naikodi added.

While Ola Cabs’ green mobility ambitions may not align with Ola Electric’s timelines for new products, what we know is that the latter has been developing electric auto-rickshaws for the past two years, which the EV major plans to launch later this year. Once launched, Ola Cabs is likely to integrate these three-wheelers into its ride-hailing fleet.

Meanwhile, Ola Electric may still take a few years to finally start manufacturing electric cars. We’ve written about the various challenges in Ola Electric’s way as it looks to enter the four-wheeler market. 

In the interim, Ola may have no choice but to join hands with fleet operators and other OEMs. 

Everything said and done, Ola’s current ambition is to significantly scale up its electric two-wheeler ride-hailing vertical. This is because Ola knows that the state governments are more likely to favour two-wheelers over traditional internal combustion engines, sometimes even discouraging or penalising the latter.

However, the fact is that electric bikes largely cater to the micro-mobility space, which makes it harder for the business to grow into profitability without a massive scale. Once again, Ola Cabs is faced with the unit economics challenge that has so far stumbled the company. 

As we saw in Ola’s FY23 numbers, the company’s net loss touched INR 1,082.5 Cr during the fiscal year, although the 64.8% reduction from FY22’s net loss of INR 3,082.4 Cr is a positive. 

Plus, Ola is not a lone figure in the electric two-wheeler space. Players such as Yulu or Rapido have established strong networks and brand recall in the two-wheeler ride-hailing space. Uber cannot be overlooked either, given its big focus on Uber Moto in recent times. 

In the case of Bengaluru-based Yulu, it currently runs 30,000 EVs across several key cities. Even if Ola Electric manages to touch the 10,000 vehicle mark sometime in 2024, it would need to accelerate its scale to catch up with existing rivals. 

Despite waking up early to the electric vehicle opportunity, Ola is still in the sleepy phase, even as the competition is off to the races.

The post Why Ola’s Path To Green Mobility Is Full Of Twists And Turns appeared first on Inc42 Media.

“Acquisitions are not plain maths where you simply add the revenue and user base numbers; it’s a merger of two different cultures and it needs chemistry, which takes time. Unfortunately, BYJU’S was in a rush to combine the numbers.” — a founder who sold his startup to BYJU’S in 2021.

Between 2017 and 2021, BYJU’S went on a shopping spree and acquired 17 startups. That’s unprecedented in the Indian startup ecosystem. 

Indeed, very few companies in the world have this kind of appetite. Apple acquired some record 100 companies between 2014 to 2021, but this was following a period of consistent profitability. Anyway, a comparison of BYJU’S and Apple’s acquisition strategies is warranted. 

Except for Beats (a $3 Bn acquisition), most of these deals by Apple were simply small acqui-hires or technology acquisitions. They didn’t impact the culture of the company or the chemistry between teams. The fact that Apple remains the largest company in the world by market cap today indicates that it managed to integrate these acquisitions successfully to a large extent. 

As we will see, that’s not the case with BYJU’S, where the acquisitions didn’t exactly align with the company’s culture and business models. 

With immediate interjections from the top management and changes from top to down level, many of these acquisitions soon became a burden for the parent company and are now ready to be re-sold at much-reduced prices. 

The inorganic growth strategy saw an unprecedented exponential decline of the parent company and the acquired companies, barring a few.  

Before diving into the specifics, let’s establish some context by starting from the very beginning.

The Making Of An Edtech Empire

Even though the company was incorporated in 2011, Byju Raveendran, along with the founding team, started working on building an online learning product in 2009. The BYJU’S learning app was brought to market in 2015, and the company took its first steps into the world of edtech. 

By 2016 onwards, BYJU’S was well into its journey but its culture was still evolving. The company tried to set a benchmark in terms of rigorous training for its sales and content teams, and hefty salary packages. 

However, soon, grievances regarding a toxic and aggressive work environment at BYJU’S began to accumulate.

Videos, audio clips, and message screenshots started circulating on social media, which seemed to back the concerns of toxic work culture and the pressure faced by employees as the company looked to achieve big numbers at any cost. 

At the same time, instead of fixing these internal issues, the company had started to look out for acquisitions to expand the product line and user base.

BYJU’S went on to acquire 17 companies over the next four years and spent around $3 Bn on these acquisitions. 

In 2017,  the idea behind these acquisitions was basically to expand the product line such as getting into online tuition, personalised evaluation programmes and so on. However, by 2021, the focus had shifted entirely to acquisitions. A former core team member even went on to say that some of these acquisitions were primarily aimed at diverting attention from deteriorating financials, including concerns from investors. 

Diving Into BYJU’S M&A Strategy

“In the early days, we hardly had any funding from major investors except Aarin Capital. It was a conscious decision then. Once we had the products, the funding started coming in, and with it came the pressure to expand as fast as possible,” according to a former core team member who is no longer associated with the company.

Soon after launching its first product, the company raised a Series C round in 2016 and then started its scaling-up journey. With big investors such as Lightspeed and Sequoia (Now Peak XV Partners) having infused almost $160 Mn, it was time to step on the accelerator. 

Employees who saw the company in those early days, before the unicorn and decacorn hype, say the investor expectations aligned with what Raveendran would promise. For instance, investors wanted big exits and returns on their investments, and Raveendran committed to growing at a fast pace to help give them the returns. 

Rarely does a startup turn profitable in the early years. Another key parameter that helped Raveendran to lure investors.

“Raveendran was always the most ambitious person in the boardroom. A person who does not shy away from taking bold moves,” said the former core team member quoted earlier, adding that this was a quality that investors liked about him.

In fact, having seen that BYJU’S was willing to splurge on acquisitions, investors encouraged edtech founders in their portfolio to adopt the acquisition route, two former employees, who did not wish to be named, seconded. 

Trouble In The Acquisition Land

While BYJU’S seemed poised to dominate edtech in 2020, many things went wrong with these acquisitions. For one, the company needed an extra long runway to integrate these companies meaningfully.

“Imagine you have raised some funding and invested all of it into acquiring new companies. And this is when you’re not breaking even but rather making huge losses. You don’t even have the runaway to run these acquired companies. You have to raise debt to keep them running. And then you have to lay off 80% of the employees to sustain the acquisition,” said the former core team member.

The inorganic approach coupled with inadequate disclosures to investors and financial reporting failures likely obscured the true extent of losses and potentially blocked efforts to secure additional funding, as we were informed.

It’s no secret that acquiring companies often come with unforeseen challenges and liabilities. The promised synergies may not materialise quickly enough to have a positive impact on the business, leading to prolonged financial strain. The company’s loss of close to INR 8,500 Cr or $1 Bn in FY22 illustrates the depth of the pitfalls of such unchecked expansion. 

The company is yet to file its financial statements for FY23, but as we reported exclusively this week, the company’s revenue has grown to INR 6,500 Cr in FY23 from INR 5,300 Cr in FY22.

Anirudh Damani, managing partner at Artha Venture Fund, believes that BYJU’S ultimately-doomed strategy is a critical lesson for startups in dealing with the complexities of inorganic growth. 

“The rapid pace and volume of acquisitions was aimed at arbitrage i.e. the company tried to acquire at lower multiples and raise funds at higher valuations based on these acquisitions. This was a critical flaw. While initially, the acquisitions boosted consolidated revenue, the strategy failed to translate into profitability. This has led to the disbandment of acquired teams and dilution of any value from the acquisitions,” Damani added.

BYJU’S raised nearly $3.5 Bn till 2021 and used a bulk of this amount for acquisitions. In 2022, it also raised $1.2 Bn from US lenders as a Term Loan B and got another infusion of $800 Mn from founder and group CEO Raveendran. (But it remains unclear if he has indeed invested the said amount.)

Meanwhile, besides acquisitions, the company splurged on marketing and advertisements, including sponsoring the Indian cricket team’s jersey, signing agreements with Lionel Messi and bringing on board film stars as ambassadors.

 Even as it had failed to account for the nuances of acquisitions, the company also failed to retain the brand equity of the acquired companies, according to a founder whose startup was acquired by BYJU’S.

Adding to this friction, acquisitions became an additional burden on the day-to-day operations. Employees also said that the centralised management approach made it worse. “Most of the brands, including Aakash, were merged with the central leadership,” he added.

Several employees were fired from across the acquired companies. 

It was also hit by lawsuits — as we will see — pertaining to misselling and misleading advertisements, which added to the problems of integrating the acquired companies and aligning new employees with the work culture. 

A former director at the company added that had the acquired brands such as TutorVista, Toppr, WhiteHat Jr and others operated independently, BYJU’S could have avoided the current situation where it is struggling to manage the standalone heavy losses.

Most of these were ailing companies. Instead of adding these as separate brands under BYJU’S, the need of the hour was to fix them separately. This way, the risk could have been minimised without focusing too much on creating new wings under BYJU’S such as Future School, Disney products etc, he added.  

There’s a reason behind it, he argued. BYJU’S was still an emerging brand while TutorVista, Edurite, Aakash and a few others were much more established brands. It was easier for the brand to reconnect than starting afresh.

But this is just one of the reasons for the failed acquisitions — as we will see next, in many cases, BYJU’S did not need to acquire the companies it did, but went ahead because of the pressure of meeting growth targets that come along with VC funding. 

Partly, this was also due to Raveendran’s inclination to present himself as a champion entrepreneur unafraid of making bold moves and taking significant risks, as noted by the former employee.

With the exception of Aakash, most of these companies including TutorVista, WhiteHat Jr, Toppr GradeUp etc were facing issues even before the acquisitions. Despite this, they had an established business model that required reaching breakeven before the full merger could be realized.

 In some cases, even though the brands were not merged directly, the change in management after the acquisition adversely impacted the growth trajectory, we were told. 

Experts reckon that instead of putting one brand name behind every category, it’s always better and easier to market specialised platforms independently. This would have allowed the acquired brands to stay focussed on their niches within edtech, instead of getting lost in BYJU’S large machinery. 

Case in point: Acquired startups and companies that remained independent such as Aakash or Great Learning have profits and continue to be a bright spot in an otherwise gloomy time for BYJU’S. 

As a result of the current controversy, even the likes of Aakash and Great Learning are suffering from the negative perception around BYJU’S as a whole. 

Great Learning for instance had nearly achieved breakeven registering INR 7 Cr of loss at INR 227 Cr in FY20, however, after acquisition in 2021, net losses mounted to INR 307 Cr and INR 357 Cr in FY22 and FY23, respectively.

Aakash, which made profits worth INR 166 Cr in FY20 is yet to repeat the same pre-Covid financials. 

Further, several startups that BYJU’S acquired were overpriced and ailing. For instance, TutorVista despite being a reputed startup had reduced to a distress sale by the time BYJU’S acquired, thanks to Pearson’s overthinking on profitability.

Similarly, buying WhiteHat Jr at $235 Mn did not help either. Before the acquisition, WhiteHat Jr had reported merely INR 16 Cr revenue at a loss of INR 71 Cr. Post-acquisition, it only widened with losses mounting 30X to INR 1,690 Cr at the operating revenue of INR 484 Cr in FY21. In FY22, WhiteHat Jr.’s revenue declined to INR 295 Cr, while pre-tax losses surged nearly INR 2,358 Cr.

Overpaying To Acquire

While problems related to integrating acquired companies happen once the deal has been signed, one could say that BYJU’S was also guilty of paying high valuations and revenue multiples for many of the deals. 

It must be noted that the company acquired over 10 startups in 2021, just after Covid disrupted offline learning. The pandemic gave new wings to edtech startups and new models emerged to cater to students and educators. While BYJU’S had the right idea of entering new verticals that were growing, this was a short-sighted move, particularly from the point of view of pricing, according to multiple angel investors who have invested in edtech platforms.

Take WhiteHat Jr for instance. It was not a good company to buy at the time as the startup was being accused of misselling and misleading ads (Remember Wolf Gupta?). 

At the time of its acquisition, WhiteHat Jr was barely 20 months old, it had just about 120K paid users and was valued at INR 2,250 Cr. The acquisition amount was INR 400 Cr more than the combined market cap of coding market leaders NIIT and Aptech. 

Days after the acquisition, WhiteHat founder Karan Bajaj even claimed that the company was on track to hit $150 Mn in ARR, a number which the company has failed to meet even four years after the deal. In fact, WhiteHat Jr reported revenue of INR 484 Cr or just over $70 Mn (as per erstwhile exchange rates) in FY21. 

One could also say that BYJU’S failed to see beyond Covid when it comes to these acquisitions. The success of edtech and BYJU’S during the pandemic lockdown was a one-off. 

Former employees allege that the management knew that this shine would not last long. That’s why they tried to push products and services into the market at the highest speed possible.

Burnt By The BYJU’S Experience

While complete financials for all acquired companies, including US-based Osmo and Epic Learning aren’t available, analysing available data reveals a mixed bag. 

Great Learning reported higher losses in FY23, while Aakash was a ray of hope as its profits grew in FY22. 

WhiteHat Jr, which was initially profitable, has faced declining user numbers, raising questions about its long-term sustainability. WhiteHat Jr’s standalone losses increased to INR 2,692 Cr in FY22, accounting for a majority of BYJU’S net loss of INR 8,450 Cr in the fiscal year. 

WhiteHat Jr has been set for a rebranding to BYJU’s Future School and the acquired company is likely to be dissolved, a source told us. 

Notably, Toppr was reportedly merged into BYJU’s core offerings, making its performance unclear. Among others, GradeUp which recorded profits worth INR 15 Cr in FY 23, has been rebranded as BYJU’s Exam Prep.

Despite cutting costs over the past few years, BYJU’S has not managed to show any signs of profits. Now, the company is trying to milk whatever funds it can raise by selling some of these assets. 

It is said to be planning to sell the US-based Epic at around $400 Mn, and even Great Learning is said to be on the way out. The burden brought on by reckless acquisitions may not entirely be relieved by these sales. 

“For startups within our portfolio, the BYJU’S experience underscores the importance of strong due diligence and measured pace in acquisitions. It’s a stark reminder that profitability and operational integration are as critical as the strategic fit of acquisitions,” Artha’s Damani said.

Resilient brands in BYJU’S fold, such as Aakash, may continue to thrive independently, but the future for others remains uncertain. The investors have demanded the original founders and promoters of Aakash return to the board and head the institute independently.

The potential divestiture of parts of BYJU’s empire is a cautionary tale for every startup that has over-leveraged acquisitions to raise funds or show growth. 

Now, two years after its acquisition spree ended, BYJU’S is planning to raise $200 Mn at a $225 Mn valuation. Desperate times, indeed. It just goes to show that while acquisitions can bring in lots of external funding at a point in time, failure in managing these acquisitions can serve to nullify any capital advantage. 

In hindsight and through the lens of these acquisitions, we can even say that this is a problem that was always going to come to bite BYJU’S.

The big question is, whether the founder Byju Raveendran has learned from the mistakes he has made. Or is BYJU’S going to remain the controversial brand, always struggling to raise the next round of funding?

By blaming the investors for hampering the latest round of funding from the rights issue, the latest emails hardly instill any confidence that Raveendran would walk the hard talk once and for all.

[Edited by Nikhil Subramaniam]

The post BYJU’s Acquisition Spree: A Costly, Deadly Gamble appeared first on Inc42 Media.

On January 31, 2024, the Reserve Bank of India notice related to actions on Paytm Payments Bank all but crippled one of the most celebrated startups in the country. The notice, which effectively banned PPB from operations, not only came as a rude shock to Paytm, but the fears are trickling down to the entire fintech industry in India. 

However, Paytm somehow took control of the situation by shifting its nodal account to Axis Bank. In the detailed FAQs issued on February 16, the RBI clarified that Paytm QR codes, soundboxes and card machines will continue to be operational after the revised March 15 deadline (earlier February 29) only if the merchants migrate to other banks.

Undoubtedly, Vijay Shekhar Sharma-led Paytm Payments Bank has faced a tumultuous period in the last 20 days. However, it’s essential to note that this isn’t the first instance of the RBI rattling the Indian fintech realm.

More recently, the central bank directed an unnamed card network to halt all card-based business payments made via payment intermediaries to entities that do not accept card payments with immediate effect.

For the past two years, dozens of startups have borne the brunt of the RBI’s policies, which has now snowballed into an industry-wide debate. Concerns and questions are being raised about whether the compliance burden is worth it, especially because it takes up so much of the focus away from running the business. 

Founders and investors are also questioning the RBI’s regulatory action in connection to Paytm, which means others in the fintech sector are left in the dark about whether they need to change their operations. 

The Heavy Hand Does Not Justify The Grounds Of Proportionality

Some believe that various RBI’s regulatory measures (listed below) could have hampered over INR 2 Lakh Cr (a conservative estimate) worth of digital transactions and led to dozens of fintech startups shutting down, and millions of end-consumers losing their money.

Nikhil Pahwa, a tech policy expert and the founder of the news platform MediaNama, told Inc42, “Startups are inherently designed to exploit grey areas to scale rapidly. Excessive compliance greatly hinders their growth potential. In the fintech sector, a significant portion of the capital injected into companies to fuel rapid expansion and market capture has unfortunately been squandered due to certain RBI policies rendering their operations unviable or untenable from an investor perspective.”

Pahwa was one of the signatories to an open letter sent by noted investors and startup founders urging the RBI to explain its actions and revoke the bar on the Paytm Payments Bank.

Their feedback to the regulator has come after hundreds of fintech startups suffered significant setbacks due to RBI regulations. Several startups such as Coinome, Throughbit, Koinex, and Muvin were forced to cease operations following notices from the RBI, while others such as Slice, Jupiter, PayU, and Instamojo had to face business slowdowns due to one or the other reason. 

As seen below, startups across stages and revenue scales, have had to bear the brunt of adverse regulatory action. 

Many of these notices were issued by the RBI based on concerns and speculation in the market, leading to drastic measures. 

For example, in April 2018, the RBI prohibited banks from providing services to crypto-based entities, citing speculation about how cryptocurrencies could potentially impact the Indian Rupee and end users negatively. This circular resulted in the closure of over 12 crypto entities within a year.

Two years later, the Supreme Court overturned this circular on the grounds of proportionality. In the subsequent circulars too, multiple founders argued that the RBI often lacks proportionality when dealing with fintech startups.

Another instance came on June 20, 2022, when the RBI directed all non-bank prepaid payment instruments (PPI) issuers to cease loading their payment instruments through credit lines. 

This decision stemmed from concerns that many non-bank PPI issuers were competing with credit cards without meeting credit card compliance requirements. The RBI is said to have been monitoring this for about 18 months, but the final notice came all of a sudden, leading to many users being left helpless. 

While there may be merits in the RBI’s arguments, what doesn’t sit well with fintech companies is the RBI’s unilateral approach, fintech founder said preferring to remain anonymous. “There were numerous ways the RBI could have acted without causing harm to many startups,” founde said about the past actions by the central bank.

Understandably, there’s a fear about talking openly against regulations, as this results in unwanted questions about whether a startup is indeed running afoul of the rules. 

In the case of the PPI ruling, the belief is that the RBI could have allowed limited credit lines for existing players while prohibiting new players from issuing them. 

Subsequently, the credit lines could have been gradually reduced. This approach would have enabled founders to explore other product options without being severely impacted by existing products, the founder added.

The Paytm Row Lacks Transparency

To be frank, everyone agrees that regulation is a must and all fintech startups must abide by the regulation. Inc42 spoke to over a dozen fintech founders, investors and tech policy experts and this was one of the key consensus points. 

Early-stage VC firm Prime Venture Partners’ Sanjay Swamy said, “I have always maintained that there is no grey area in compliance, especially in fintechs – so the focus on compliance will be a lot more strict from now on; it’s simply non-negotiable.”

Paytm’s KYC measures, the payments bank’s association with Paytm, related party transactions, and opacity of wallet ownership have been questioned by many, but the fact is that RBI did not stop these before it became such a big issue, few highlighted. 

For instance, Sucheta Dalal, a journalist who exposed the Harshad Mehta scam in the 1990s, said that the annual report of Paytm Payments Bank is not available separately, since it is a subsidiary or associate of One97 Communications (Paytm). 

“SEBI disclosure rules don’t help. 58% held personally by the founder Vijay Shekhar, so how was it allowed to deal with such large public funds? Will the RBI and SEBI put out info for analysis even now or should we ONLY rely on pressers and leaks?” she asked.

The episode has hit the industry hard with investors rethinking their fintech investment strategy in the short-term or medium-term.

One of the biggest issues that fintech founders pointed out is the lack of transparency. “We are not questioning why the RBI took these measures, but how and for what exactly,” said a payments startup founder.

“Also, if a certain bank fails to meet the compliance within the given deadline. The RBI needs to interject with other instruments first such as a change of the directors, and appointing its director to make sure the bank becomes compliant among many other corrective measures. Why should the end consumers always suffer for the RBI’s regulatory inefficiencies?” asked the founder.

Besides publishing the circular, the RBI has been shying away from discussing the matter in detail. “Paytm Bank was given so much time. In our case, having initially secured a PA licence, it was later cancelled without any adequate time to find alternatives,” said another payments startup founder.

Interestingly, whether it’s the SBM India, Paytm Bank or in many other cases, the RBI has cited “Material Supervisory Concerns” to explain its actions.

In the latest Paytm row, the RBI had also added that the Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliance and continued material supervisory concerns in the bank, warranting further supervisory action.

However, it didn’t reveal the magnitude of non-compliance that led to this scale of supervisory action to establish the very ground of proportionality.

This doesn’t help startups who want to abide by the compliances but often look confused and frightened when asked about regulatory issues and how they plan to tackle it, said an industry stakeholder.

Even Paytm founder and CEO Sharma could not delve into the exact issue in calls with analysts and claimed that the bank has been restricted from sharing more information with One97. It’s all a bit confusing at the moment, even for the company which has been hit the hardest. 

Is Fintech Investible?

Investors are wary of the impact in the short and medium term. 

As MediaNama’s Pahwa explained, “What’s happening in fintech is that after SaaS, this was the big bet for VCs in terms of trying to create a new industry and grow the market that now with a large number of companies faltering, and within ecosystem becoming very, very restrictive, because of RBI regulation, and especially with the scare that’s happening.“

Others claimed that VCs are going to be a lot more cautious about investing in highly regulated areas. It sends out a signal to founders about fintech having an entry barrier and it tells investors that exits and returns will not exactly come as expected. 

“I think nobody will want to touch a domain where the RBI has a regulation,” Pahwa claimed.  

The other worry is that this indicates that regulators are going to be very tight across sectors. 

Despite the government’s claims, many believe that India has not really embraced ease of doing business. Dr. Somdutta Singh, serial entrepreneur, founder and CEO of Assiduus Global Inc, and angel investor, said, “These incidents prompt a reassessment of investment strategies, with a greater emphasis on due diligence and risk mitigation. While regulatory hurdles may necessitate adjustments in investment size and sector focus, the underlying potential of fintech remains compelling.” 

Dr Singh added that prudent investors will seek opportunities in companies that demonstrate a commitment to compliance and resilience in the face of such regulatory challenges. It might result in VCs adjusting investment sizes or fine-tuning their sector thesis. 

The fundamental role of a regulator is to safeguard consumer interests, setting guidelines that allow innovation to flourish without detrimental effects on the people that they aim to protect, believes Anirudh A Damani, managing partner, Artha Venture Fund.

“This understanding has been pivotal in our investment strategy, especially within the fintech sector, where rapid growth often treads a fine line with regulatory adherence. But recent actions serve as a reminder of the complexities inherent in navigating the fintech ecosystem. These instances highlight the essential nature of engaging with regulatory bodies, fostering an environment where innovation can proceed within the bounds of established rules.” 

Among these cautionary tales, Swamy believes that there will be no slowdown in investments in the early stage fintech, because they can be more agile and adaptable. 

Is RBI Even Equipped To Regulate Fintech?

MediaNama’s Pahwa believes that whatever growth has been seen by the fintech industry is in terms of lending or in terms of financial inclusion through wallets and UPI. He claims that a lot of this is not because of the RBI, but despite the RBI. 

Kaushal Sampat, founder of risk management company Rubix Data Sciences, said that protecting consumers sometimes may seem contradictory to promoting financial innovation. Regulators have to constantly adapt their approach to reflect these diverse considerations and evolving markets. 

The central bank is by design a regulator and it prefers to regulate banks and those entities that it can control tightly. Banks have a significant amount of compliance. And as such Paytm Payments Bank should also have had the kind of compliance that was required by the RBI, but fintech companies do not necessarily fall under the central bank’s purview. 

Pahwa added that the RBI doesn’t like to regulate too many entities, such as thousands of fintech companies. “They would rather regulate a few banks, like maybe 50-100 banks, so they can keep tight control of this space. They don’t have the capacity or the willingness to really experiment or allow experimentation here. But that’s their basic nature. If companies struggle for licences and compliance, it makes it very expensive to start up in fintech.” 

No one is claiming that the RBI’s focus on regulating the flow of money or anti-money laundering is not important, but there needs to be a middle ground and some ground of proportionality, say the stakeholders.

“To streamline their business processes, fintech companies are urged to use cutting-edge technology like cloud computing and data analytics. This helps them comply more easily and positions them to gain a competitive edge in the rapidly evolving market,” added Milan Sharma, founder and MD of Mumbai-based VC firm 35North Ventures.

While there is a fear currently of the regulatory hammer falling on the future of their business, startup founders are clear that creating the delicate equilibrium between safeguarding consumers and mitigating systemic risks is paramount. 

The recent strategy adopted by the RBI focuses on licensing and heightened supervision, steering fintech products toward conventional regulatory channels. If this is the new reality then startups will find a way to innovate within this sandbox. 

But it’s when actions come out of the blue, that fintech startups get spooked. And that’s why perhaps many believe that the RBI needs to share authority with new-age regulators to determine the future of fintech.

The post RBI Vs Paytm Payments Bank: Shockwaves In India’s Fintech Ecosystem appeared first on Inc42 Media.

India’s electric vehicle market has changed drastically in the past three years, but for Ather Energy, a pioneer of sorts in the EV startup ecosystem, it’s been a story of stagnation. 

Electric two-wheelers (E2W) today command a significant 60% market share of all EVs with the likes of Ola Electric, TVS, Chetak and Hero MotorCorp’s Vida joining in the past three years to compete with Ather.

While Ather Energy looked to distinguish itself on the back of its design and technological prowess as well as a patient approach to product development and ecosystem surrounding the product, the competition has swerved. 

If Ola Electric has set the pace, then the likes of TVS and Bajaj have also ramped up their EV verticals, even as Ather Energy is still busy establishing the infrastructure it needs to scale up. Now Ola Electric is on the IPO track and Ather is on the drawing board for its next generation of products. 

As Ather’s first mover advantage seems to be vanishing, can the company bounce back thanks to its strategic partnership with Hero Motocorp or will the Bengaluru-based EV startup falter in the face of the growing competition? 

Ather Energy’s Lead Slips

Having successfully set up two manufacturing plants in Tamil Nadu with a combined capacity to produce 4.2 Lakh scooters annually, Ather is bullish about the future. 

Additionally, Ather Energy has a network of 1,700+ fast charging stations across the country which offer it the infrastructure advantage. The company plans to take these numbers to 5000+ by the end of this calender year.

However, it’s the emergence of deep-pocketed players like Ola Electric, TVS and Bajaj in the E2W segment that Ather Energy is struggling to catch up. While IPO-bound Ola Electric’s market share has grown from 21% in April 2023 to 33% currently, Ather’s market share has remained stagnant at 11% during this time. 

In all fairness, Ather now has 11% of a larger market, but given its first-mover advantage, perhaps many are asking if it should have pushed for faster growth, especially because Ola was clearly stepping on the accelerator.

Legacy two-wheeler players TVS and Bajaj have also significantly increased their market share — with the former now accounting for 20% of the market, and Bajaj grabbing 10% market share. 

So, when all the key players are flourishing in this burgeoning space, what is holding Ather Energy back?

It’s the revised FAME II initiatives that led to this market dynamics, says an Ather official. 

An Ather spokesperson said, “With the FAME II revision that happened earlier this fiscal year, we slowed down our network expansion and product portfolio expansion due to the uncertainty in the industry. Currently, we are steadfast in our growth journey and are working on expanding our product portfolio and retail network after successfully navigating the difficult headwinds that the EV industry faced post-FAME II policy revision. We have started to add more retail outlets and will soon launch our first family scooter. 

Having said that,  we have recovered most of our pre-subsidy revision market share. If you look at the data from the last 3 months, our market share is around 13.1%, and we are confident of crossing our highest market share soon.”

Here, it must be noted that Ather Energy was so early to the space that it had to focus on the fundamentals rather than the breakneck growth that Ola has shown. At a time when the Indian market was flooded with Chinese assembled and imported E2Ws, Ather played a key role in changing the people’s perception towards the quality and making it available locally. 

A source involved in the company’s day-to-day affairs told Inc42, “Initially, the company didn’t have the adequate infrastructure to cash in on its first-mover advantage. It took much effort and time to build a small assembling unit in Whitefield, Bengaluru, which later had a maximum capacity of producing 20K-30K scooters a year.”

At the outset, the company was only producing 75 scooters a month but this was later increased to 2K+ scooters per month. Despite this, the EV maker was unable to meet the demand in the early days which might have changed the current situation, we were told. 

The waiting period for customers was over six months at times. Back in 2018-2019, the demand was such that the company is said to have halted bookings multiple times.

When it had sorted out some of these production challenges, the shortage of semiconductor chips added to the slow scaling up between 2019 and 2022. And when it was out of the chip crunch, Ola entered the picture to change the competitive dynamics. 

With Ola Electric on its radar, the company is aiming to set up one more manufacturing plant to take its capacity up to 1 Mn scooters annually or more than 2X higher. A third plant was planned to be functional by FY 24. However, the startup has not even finalised the location yet.

The company is in discussions with various state governments, said the company spokesperson.

Despite the headway that it had after launching in 2013, Ather Energy’s potential scale is dwarfed by Ola Electric. While the current capacity of Ola Electric Futurefactory at Krishnanagar is believed to be 1 – 2 Mn E2W per year, the unit is said to be expandable up to 10 Mn — which Ola calls the largest such facility in the world. 

Ather Energy has to significantly scale up its production capacity to catch up with the pace that Ola Electric is looking to set. 

Ather Energy was one of the first companies to build the aspiration for EVs among Indians, said Dr Allabaksh Naikodi, former head of EV, Royal Enfield, and former CTO of JLN Phoenix Energy. 

Ather developed a great product with great design and better quality, but Ola Electric has pulled ahead because of the supply chain, digital sales strategies, big bang marketing, and other factors, including funding, he said. 

Anyone buying an electric scooter looks for affordable pricing, range capacity, power, and speed. While Ather Energy offers a good range of up to 150 Km (certified), Ola Electric claims to surpass some of the key metrics by significant margins. This is where the tall claims of Ola Electric attract the consumers more and hence their sales numbers.

Besides, Ola Electric, TVS, and Hero MotorCorp already have a strong product line for future launches. This includes Escooters, e-bikes, cars (by Ola Electric), and electric three-wheelers. Ather Energy has unveiled one family scooter Ather Rizta so far. While Ather intends to launch e-bikes as well, there is no clarity over the product launches.

EV Pioneer Looking To Fuel Up

One could say that Bhavish Aggarwal’s previous business experience of building and scaling up Ola gave investors more confidence about Ola Electric’s chances in the market. And while Aggarwal’s original plan for Ola Electric was an electric mobility business, it morphed into an EV maker rapidly when there was an opening in the market. 

Unlike Aggarwal, Ather cofounders Tarun Mehta and Swapnil Jain were first-time entrepreneurs. The company first started with building a battery pack and a battery management system before venturing into its current OEM model. 

As a result, funding for Ather Energy came in fragments. Unlike Ola Electric, it didn’t have enough funding in the early days to set up a large manufacturing plant. It chose to start off manufacturing in Whitefield, Bengaluru, before moving to Hosur in Tamil Nadu.

Today, Ather Energy has raised over $400 Mn in debt and equity funding through a dozen rounds. But is this enough to compete as an OEM? 

According to industry experts, the total capital raised may be adequate to keep Ather Energy going in the short to medium term, but it may not be enough to take on Ola Electric, TVS and Bajaj.

While Ola Electric was founded much later, almost five years after Ather Energy, it has raised over $1.5 Bn to date and has been able to disrupt the entire EV market. After two-wheelers, the company is planning to launch electric cars by 2025, while Ather is still stuck with a limited SKU volume. 

The other rivals are also bulking up — TVS claims to have injected over INR 1,000 Cr into the E2W biz, and Bajaj is said to have injected over INR 750 Cr.

Only a small fraction of their resource base is dedicated to EVs, yet they have been able to double their market share in the last two years. 

They can threaten the leadership position of Ola Electric in a few years as they ramp up investments, believe experts. So what option does Ather have? 

Hemanth Kumar, cofounder of Bullwork Mobility who earlier worked with both the companies Ola Electric and Ather Energy added that funding plays a critical role for any OEM’s survival. 

Seconding him, Dr Deb Mukherji, MD of Anglian Omega Group which owns EV OEM Omega Seiki Mobility said, “The funding gap has been solved by joining hands with Hero MotoCorp. In the automobile space, it’s always about the partnerships and collaborations which can fill the funding gap.” 

Largest investor in the Ather Energy, Hero MotoCorp and Ather Energy’s partnership extends to building an interoperable fast-charging network, which improves the unit economics of Ather’s infrastructure business and allows it to focus more specifically on being an OEM. 

The collaboration with Hero enables EV users of both companies to be able to locate and navigate to the charging stations through the My VIDA and Ather’s apps. 

Mukherji added that Hero MotoCorp will be a key strategic partner for Ather Energy which can solve scaling-up problems. “Whether it’s the expansion plans or logistics/supply chain-related issues, Ather Energy won’t have to worry about anything,” he added. 

Funding is not going to be an issue. An Ather spokesperson however asserted that the company has raised around $400 Mn till now, which is the second highest funding any E2W company has raised globally to date. “In the last 18 months, our shareholders have invested cumulatively INR 1300 Cr in Ather. We have a strong list of shareholders who have been a part of Ather for a while, and have been strong backers,” the spokesperson said.

How Can Ather Turn It Around?

What Ather does best is offering the best ride experience in conjugation with customer service experience, qualities that take their time to reach the critical mass in the market, according to Bullwork’s Kumar. 

Despite being a smaller company, he believes that Ather offers a much better customer service experience, which consumers will eventually reward. 

This could also be understood by the fact that on the Consumer Complaints Forum, the decade-old Ather Energy has only two complaints, while Ola Electric has over 166 complaints in two years. Of course, the counter-argument is that Ola Electric has sold twice the number of scooters in that time frame, but this does not justify the skewed ratio of complaints.

However, Naikodi believes that Ather’s leadership role in customers’ perspective is slipping too. The company needs to revive how it used to connect with customers on a personal basis.

Another aspect where many consider Ather Energy to have some lead over Ola Electric is the value engineering.  An EV analyst pointed to wheelbase/kerb weight differences of Ola S1 Air and Ather 450S, where Ola Electric’s scooter weighs less than Ather despite having a much larger wheelbase and a slightly bigger battery. “Ola’s S1 Air is almost 9 Kg lighter than the Ather 450S. Where do you think they have reduced the weight to achieve this?”

The fire incident involving Ola S1 Pro scooters in Pune last year led to Ola Electric paying a fine of INR 15 Lakh. Whether the company is likely to face a similar fine in the future is uncertain, but there have been other reports of safety incidents since last year, which may still be investigated.

The company has allocated INR 68 Cr for warranty expenses as of June 30, 2023, increasing from INR 44 Cr and INR 12 Cr as of March 2023 and March 2022, respectively. Ola Electric is yet to complete a full warranty cycle since the policy covers three years, and the company says it has only seen a limited number of claims for the scooters it has sold. 

Maintaining that building the highest quality scooter is the Ather USP, a spokesperson added, “Quality over on-paper specs – Ather has demonstrated that an Indian company can build some of the highest quality standards in the 2W industry, all locally built and homegrown. No JVs to get ‘access’ to tech and no acquisitions. Customers buy an Ather product for its peace of mind, experience and quality. We remained obsessively focused on the same.” 

The Cost Of Being An OEM

Ather Energy’s expenditure on the cost of materials consumed is over 90% of the operating revenue. Dr Mukherji believes that the company is making a significant loss on each vehicle it sells, just like other leading OEMs currently. 

Secondly, gaining a better control over EV cells supply and pricing is believed to be crucial for EV OEMs. BYD, primarily a cell manufacturing company, is currently touted to be the biggest EV car manufacturer in the world, surpassing Tesla by significant margins. In Q4, 2023, BYD sold a record 526,000 battery-only vehicles while Tesla delivered 484,500 electric vehicles.

 Some of the key EV manufacturers such as Tata Electric Mobility and Ola Electric have also entered the cell manufacturing business. For instance, Tata has committed INR 13,000 Cr to build a Gigafactory in Gujarat. Ola Electric raised an initial investment of INR 3,200 Cr to build its 100 GWh Gigafactory. 

Log9 Materials has built a 25 MWh capacity plant at INR 190 Cr and plans to build a 25 GWh gigafactory at an estimated cost of INR 10,000 Cr.

Ather Energy, on the other hand, has invested INR 320 Cr in its Hosur second plant which includes both a battery manufacturing plant with 1.2L battery packs capacity and EV manufacturing plant. It has planned to invest INR 650 Cr by 2027.   

Whether it’s building a cell manufacturing plant or designing and manufacturing new products such as electric bikes, which TVS and Ola Electric have already showcased, would need a long-term investment. While Ather has raised over INR 1300 Cr in 2023, can it meet the short-term and long-term requirements?

Sources say, the fundraising process for Ather has been a roller-coaster ride in the past. Barring Hero MotorCorp,some of the key investors such as Tiger Global have not made follow-on investments despite multiple talks. It took Ather seven years to raise another institutional funding in 2022 since it first raised from Tiger Global in 2015.

In 2023, besides having raised $108 Mn from GIC and Hero MotorCorp, the company secured another INR 140 Cr from existing investor Hero MotoCorp from rights issue.

Undervaluation of the company has been a challenge behind the high equity dilution at the lower amount. 

Ola Electric is going for an IPO at close to a $7 Bn valuation, while Ather Energy is reported to be privately valued at $800 Mn. 

Back in 2021 and 2022, Ather Energy cofounder Mehta publicly admitted the fact that his company is undervalued. In response to the difference between the Ola Electric valuation and that of Ather’s, Mehta said, “Ather is considerably undervalued still… In a way, I take responsibility for that.”  

But the aforementioned capital infusion has not boosted the valuation significantly, and resulted in equity dilution. Founders are currently the minority stakeholders at 9.96%, with Hero MotoCorp alone owning 39.7% and the remaining shares being held by various funds and angel investors.

“This has pushed the founders into a corner where they would have limited options to raise institutional funding. In the long run, this could also impact their ability to make decisions in the boardroom as well,” said an EV analyst.

Ather spokesperson however believes that there is unnecessary focus being given to the valuation debate. “The media needs to reassess its overemphasis on valuations. It’s not healthy, as we have seen in multiple cases before. At Ather, we will continue focusing on building a capital-efficient and sustainable business,” said the spokesperson.

Those who have worked with the founders of both Ola Electric and Ather Energy believe that culturally, the leadership of the latter is very different. “If you meet Bhavish Aggarwal and then the Ather cofounders, you will find a huge difference. Aggarwal’s focus is on building massive businesses. On the other hand, Ather’s cofounders have always been focussed on building a better product,” says Bullwork’s Kumar.

Path To Profitability

These two approaches have their pros and cons, but the E2W market is changing rapidly and Ather has been moving too slowly. 

Mukherji believes Ather has to figure out a mass product, which can compete with the 110 cc and 125 scooters directly.

He cited the example of how Suzuki turned things around. It hardly owned 8% of the market share for SUVs, but it wanted to capture 50% of the market share eventually. Starting with ‘Brezza’, Suzuki today owns more than 22% market share. It’s planning more products to get to 50% market share. Ather needs a similar kind of approach, Mukherji said, where its product strategy has to align with market factors.

This has been the core focus of Ather for some time now. It needs to turn profitable soon. But how does it intend to come in the black in the main question?

Naikodi believes Ather has to solve the procurement costs, “Buying cells, which one has to import, is a costly affair. If you buy over a million cells at a time, it’s almost 20-25% cheaper. This could be a big factor in profitability, but for that Ather has to increase manufacturing.”

And, not just cells, over 300 components are currently imported for building an E2W in India.

This is also one of the areas where Ola Electric may have an edge over Ather Energy. Mukherjee believes this could be compensated by better value engineering and Hero MotoCorp as a partner.

Just as Kia and Hyundai source components together at a cheaper rate, Hero MotoCorp and Ather could join hands or form a JV for joint procurement. The companies could also look at building a cell manufacturing plant under the government’s PLI scheme to lower their collective costs and improve the product life cycle.   

Localisation could be the key behind the cost minimisation, believes Ather. “Ather has one of the, if not the highest levels of localisation with our motors, controllers, VCUs, battery packs, BMS, frames, suspensions all built right here in India. There’s a great component ecosystem in India and it would be incorrect to believe otherwise,” said the spokesperson. 

Ather Needs To Be More Agile

When Ola launched its product, the EV maker tried to do everything at once. The approach was to sell first using the Ola Cabs platform, followed by building the showrooms, service centres and charging stations. 

The company first built one of the largest factories — Futurefactory — followed by Gigafactory, charging stations and unveiled new products including e-bikes and electric cars.  

Ather’s approach has been more planned. The approach has been building the user-centric infrastructure such as charging stations and service centres first, before launching the E2W in the particular market. 

However, this strategy will not help Ather today, according to some EV market analysts. 

In a fast-evolving market, Ather Energy needs to be more agile in new product launches. Instead of building everything, it also needs to let go of a few products that could be available at cheaper prices, experts said.

Lastly, unlike Ola which has been selling the specs, Ather has been trying to build a better product experience, However, this is hardly visible in their branding and advertisements said the likes of Mukherji.

As the EV market continues to evolve and mature, Ather Energy’s ability to adapt and innovate will be crucial in determining its future. Can the OG electric vehicle startup in India fight off Aggarwal’s Ola Electric juggernaut and legacy players?

[Edited by Nikhil Subramaniam]

The post Ather Energy’s Stagnation: What Stalled India’s OG EV Startup? appeared first on Inc42 Media.

On September 27, 2023, a financial maelstrom swept through India’s vibrant fintech landscape when the Reserve Bank of India (RBI) cracked its whip on leading payments startup Mastercard-backed Instamojo among dozens of other startups by rejecting their payment aggregator licence application. 

The central bank’s whip fell on 25 existing payment aggregators (PA) licence holders and and 47 applicants who saw their applications rejected. As per the notice, the existing aggregators were granted a 180-day sunset clause to gradually wind down payment aggregator operations.

This wasn’t the first time the RBI’s heavy hand had sent shockwaves through the ecosystem. In April last year, SBM Bank India blocked the corporate credit cards issued to some of the customers of its fintech partners due to KYC concerns.

While the SBM fiasco turned into a nightmare for eight lakh MSMEs and startups using co-branded corporate cards, history seemed to be repeating itself for PAs.

Notably, if the SBM fiasco impacted around 800K individuals, as many as 3 Mn merchants are estimated to be impacted by the RBI’s PA licence application cancellation move, with Instamojo alone sitting at around 2.5 Mn strong merchant base back then.

Well, for millions of startups and MSMEs, PAs have been playing a crucial role, and Instamojo was just one of the many platforms awaiting a licence. But it was the worst impacted.

In November 2023, Instamojo announced it is shutting down its PA business.  Originally established in 2012 as a payment solutions provider for small and medium enterprises, the startup diversified its offerings in 2021 by introducing an ecommerce software platform. The company offers software to assist businesses in establishing online stores while providing essential services such as branding, analytics, and shipping.

Since its inception, Instamojo has successfully secured $15.2 Mn from notable names such as Mastercard, Gunosy Capital, Kalaari Capital, and Blume Ventures. But being rejected by the RBI in the PA game was a big blow.

Why Did RBI Reject PA Licence Applications?

According to the RBI’s Guidelines on Regulation of Payment Aggregators and Payment Gateways, licence holders must maintain a net worth of INR 15 Cr for the first two financial years and a net worth of INR 25 Cr after that.

Furthermore, this criteria is not a one-time requirement for the licence. Payment aggregators must consistently adhere to licensing prerequisites. 

Those with PA licences need to submit monthly reports related to transaction statistics, fraud, and cybersecurity incidents by the 7th of every month. They are required to produce a certificate of auditors on their Escrow balance, a certificate of bankers on Escrow account credits and debits, and customer complaints reports quarterly as well as a yearly net-worth certificate by 31st of December every year. 

Though this is not an exhaustive list of compliance, non-compliance can lead to penalties and potential license suspension.

Some of the existing PAs, including Instamojo, failed to meet the criteria.

Speaking with Inc42, Akash Gehani, the cofounder of Instamojo said, “There have been differences in how we arrived at the net worth and how the central bank calculated. Instamojo met all the other required compliance, barring the net worth one.” 

Meanwhile, a source from the RBI’s Payment and Settlement Systems in India said that the licences were revoked on various grounds and not just for not meeting certain criteria. In multiple cases, the licences have been withdrawn. Only in some cases, it has been revoked.

We were told that Worldline India Private Limited’s PA licence has been withdrawn because another subsidiary Worldline ePayments was granted the licence. Similarly, Ezetap’s (acquired by Razorpay in 2022) licence was also withdrawn. 

“Some of the other entities pivoted their product line and showed no will to hold their PA licence any longer,” the source added.

Panic Engulfed Instamojo Customers

Panic engulfed merchants when the cancellation news hit the market. “There was no prior intimation of what was happening. When we heard the news, INR 14 Lakh were stuck with Instamojo,” Ashish Gupta, founder of edtech platform Bambinos Live, told Inc42.

Not to mention, this is just one of many examples. As the chaos intensified, social media platforms got flooded with merchants complaining about not receiving their payouts.

The plight of Kundan Singh, the founder and CEO of Icon Technosys, is yet another example to consider. When this entire fiasco was unfolding, Singh said his company faced a lot of issues in receiving payments from its clients. 

“The profile dashboard of our company on the Instamojo platform directed us to resubmit KYC-related documents. Despite our submissions, there was no communication from the company’s side for the next one month,” Singh said. He added that his company is yet to receive the pending payouts. 

Another case is of Dr. Kapil Kakar, a psychologist, whose payments have been pending since October last year.

“After Instamojo’s merchants raised their voices, the company refunded the money. However, instead of processing the payments to our accounts, they refunded the money to our customers,” Kakar said. 

Meanwhile, more than a dozen merchants that Inc42 spoke with highlighted that no communication from Instamojo made matters worse. Further, we were told that by the end of November, the dashboards of many customers that were earlier showing outstanding payments stopped displaying the amount or in some cases the right figures.

Bambinos Live’s Gupta said that initially on the dashboard, the outstanding amount was around INR 14 Lakh, which turned to INR 12.5 Lakh before disappearing altogether. “We had to manually calculate the payouts and do the follow-up,” he added.

Himanshu Khandekar, the founder of K3 Consultancy, said it was like living his worst nightmare. “Our business was nearly stuck for two months. The Instamojo team kept asking for some documents and never verified them. Payment options, including UPI, suddenly disappeared. The only option available was the wallet payment, which hardly anyone uses,” Khandekar said.

Amid slow and standard responses from Instamojo, some of the users even filed a police complaint.

Could The Chaos Have Been Averted? 

In its notice, the RBI instructed the existing 25 PAs to halt online payment aggregation activities and close nodal/escrow accounts within 180 days from the application’s return date.

Considering the 180-day sunset clause, could Instamojo have handled the situation any differently? 

Highly unlikely, Gehani clarified, because despite the RBI’s stated sunset period, Instamojo was directed to halt operations immediately upon receiving the RBI letter. The abrupt service interruption was, therefore, unavoidable, but communication with merchants could have been better.

It’s pertinent to note that Instamojo did not inform the merchants about the RBI order but instead attributed the issue to a ‘technical glitch’. After failing to secure the PA licence, Instamojo joined hands with third parties. Before onboarding, a re-KYC of all merchants was required, which resulted in delays. 

“While we fully understand the plight of merchants and the disruption in their business, especially during the festive season, one needs to understand the scale. It was like moving one city to another location. No matter how well you do, there will be issues,” Gehani explained.

Instamojo is currently at a critical turning point, with payments accounting for three-quarters of its revenues. The RBI’s order has compelled the company to reassess new revenue streams.

“Despite everything, we will continue to offer a one-stop solution to D2C merchants. For payments, we have already partnered with other fintechs,” Gehani said.

While Instamojo has been able to bring down the share of payments in its total revenue from 90% earlier to around 75%, a significant share of this revenue will now have to be shared with its payments partners. As such, the company is staring at a big challenge. 

The Buck Stops With The RBI 

The RBI has been mandated to safeguard the end-consumers’ interests. However, the way the central bank enforces its decisions in the market sometimes paralyses the entire ecosystem. 

Whether it was the SBM fiasco or the Instamojo case, the RBI’s decisions didn’t just impact these companies but also the end-consumers that the central bank aims to safeguard. In both these cases, the RBI clearly failed to ensure smooth implementation of its decisions. According to Dr. Kakar, the buck has to stop with the central bank, which doesn’t seem to be the case now.

“I wanted to raise a complaint with the RBI Ombudsman regarding Instamojo. However, Instamojo does not even feature in the RBI’s list. How can I complain? And if not the RBI, who should I complain to?” Dr. Kakar said

Several startup founders, whose PA licence applications were rejected by the RBI, expressed their disappointment to Inc42 over the way the central bank handled the issue.

“Some of the organisations have been granted approval despite them not having any physical presence in India. Also, some of the organisations that have been approved are also accused of operational misconduct in the past. This raises questions about the way the central bank approves the applications,” one of the fintech founders, who didn’t want to be named, said.

In the past also, the RBI has prevented Razorpay and other PAs from onboarding new customers which is completely fine as it does not impact the existing customers. However, in the case of extreme steps like cancelling a license, the RBI must look into factors like how it would impact the existing end consumers. The order should also ensure that it must be implemented in a phased manner to minimise the impact on end consumers.

The prevailing sentiment among the startups is that the RBI can’t just issue diktats and leave them to face the ire of the consumers. The central bank needs to be more transparent about the way it makes decisions and also take care of a smooth transition following the issuance of orders and guidelines by it.

[Edited By Shishir Parasher]

The post The Instamojo Fallout: What Happened When The RBI Cancelled Payment Aggregator Licences? appeared first on Inc42 Media.

• July 2021: MobiKwik Files DRHP For INR 1,900 Cr IPO
• October 2021: MobiKwik Gets SEBI Nod For IPO
• January 2024: MobiKwik Refiles DRHP, To Raise INR 700 Cr Via Fresh Issue

In just over two years, MobiKwik’s tack has changed. The Delhi NCR-based fintech unicorn refiled the draft red herring prospectus for an initial public offering in the first week of 2024. Two years after its initial bid to go public in 2021, the company has clearly reevaluated what it can hope to get from the public markets. 

In 2021, the company had set its sights on raising a substantial INR 1,900 Cr (INR 1,500 Cr from fresh shares and INR 400 Cr from OFS), but this has been reduced by 63% to INR 700 Cr in 2024. And unlike the 2021 DRHP, there’s no offer for sale (OFS) from existing shareholders this time. 

Interestingly, the 2021 DRHP was filed after the company experienced more than 18% decline in revenue from FY20, and even though in FY22 and FY23, MobiKwik’s revenues have grown considerably (85% over two fiscal years), the fintech unicorn is eyeing a much more muted public listing. 

Founded in 2009 by Bipin Preet Singh and Upasana Taku, MobiKwik itself has evolved from 2021 onwards. It started out as a digital wallet and has broadened into a comprehensive horizontal fintech platform. 

Currently boasting over 140 Mn+ users and 3.7 Mn+ merchants, the fintech startup expanded its offerings in 2018 to encompass diverse financial services, including credit, insurance, digital gold, and mutual funds. This expansion was in addition to its existing services such as bill payments, payment gateway services, and digital payment solutions.

MobiKwik’s product strategy is in line with the rest of the fintech ecosystem, but ahead of its potential IPO later this year, the question is whether this is enough to navigate the complexities of the public market. Over the past couple of years, MobiKwik has become a lending-first company, similar to most of the competition, and this itself may not be enough, as analysts point out. 

More importantly, there is also the question of how MobiKwik fares against listed fintech companies such as Paytm, which have struggled in the stock market. Let’s dive in to find out. 

2021 Vs 2024: A Better Deal For Investors?

In contrast to 2021, when emerging tech stocks lacked reference points, leaving both investors and startups in the dark about pricing, the landscape has significantly changed. With the listings of Paytm, Zomato, Nykaa, and other tech stocks over the past few years, their performances serve as valuable benchmarks. 

Experts believe that these stocks provide essential insights for emerging startups as well as investors to take precautionary measures concerning pricing, price bands, IPO size, and more. And many also believe that MobiKwik’s rationalisation of its IPO valuation and pricing would serve its existing shareholders well in the long run.

Till date, MobiKwik has raised close to $180 Mn in equity and debt funding from the likes of Peak XV Partners, Orios Venture Partners, Cisco Investments, NET1, Abu Dhabi Investment Authority, Bajaj Finserv, American Express Ventures among others. The startup joined the unicorn club in October 2021 after some employees exercised ESOPs.

MobiKwik, in many ways, offers products similar to Paytm. Both have wallet services, bill payments, lending, and investments as verticals. And MobiKwik can now draw upon Paytm’s IPO as a reference point, which it seems to have done.  

This arguably explains why the company has not exactly pushed for an OFS this time around. Existing shareholders are likely to see better returns from waiting for a few months after the IPO to sell their shares when the stock price has stabilised, rather than jump in at the time of the IPO, when listing gains are not a given.

After its listing, for instance, Paytm was criticized for going for a price that benefitted its existing shareholders rather than retail investors, which shook the market’s confidence in the stock. Even in 2024, Paytm has not recovered from the value erosion after listing in 2021. 

In line with this, MobiKwik’s valuation and pricing strategy appears to be much more grounded in contrast to 2021. At that time, a bullish sentiment was prevalent among new-age tech companies in relation to public listings. Since then, the experiences of Paytm, Zomato, Nykaa, and others have served as lessons for companies on the IPO path. 

As a result, the biggest difference between MobiKwik’s 2021 DRHP and the current one is on the pricing and the valuation it is targeting. The initial higher valuation in 2021, at the peak of the fintech boom, reflected a market flush with capital and high investor enthusiasm for tech startups. The subsequent reduction in IPO size to INR 700 Cr, with a focus on fresh issues, suggests a strategic recalibration in response to a more sober market environment. 

“Current market conditions and regulatory landscapes for fintech companies, especially in lending, have necessitated a more grounded approach,” believes Umesh Chandra Paliwal, cofounder and CEO of UnlistedZone. 

He added that a smaller IPO size reduces the risk of overvaluation, a challenge that Paytm faced post-IPO when its shares dropped significantly. A smaller IPO size can be more manageable and attractive to investors, especially in a volatile market.

“MobiKwik’s anticipated IPO range of INR 800-INR 900 per share, translating into a valuation of INR 4,500 Cr – INR 5,100 Cr, reflects cautious optimism in the market. Unlike Paytm’s broader product suite, MobiKwik has pivoted significantly towards lending from payments. Lending accounts for over half of its revenue in FY23 and the first six months of FY24,” Paliwal told Inc42.

MobiKwik’s shares in the unlisted market gained by INR 200 in the weeks after its DRHP in 2021, hitting a peak price of INR 1,400 in October 2021. Since then, the stock has slid to a low of INR 350 in the grey market. 

Now in early 2024, MobiKwik shares in the grey market are on the rise, but this could be attributed to a potential listing coming soon. 

“The drop between 2021 and 2024 indicates the poor perception of MobiKwik among investors. It is potentially seen as a risky investment, likely due to its narrow focus on the highly competitive lending market,” added Paliwal.

The shift from payments or wallets to lending indicates a strategic move to capitalise on India’s growing digital lending market. This is not just the case for MobiKwik but a host of other players in the fintech space. 

“MobiKwik plans a pre-IPO placement of shares worth around INR 140 Cr. This strategy can help in testing the response of institutional investors and potentially boost investor confidence before the IPO. It also allows the company to reduce the size of the fresh issue if this placement is successful, further mitigating risk,” said Jitesh Agarwal of financial consultancy firm Treelife.

The Short Term Vs Long Term Financials 

MobiKwik has recently announced its second consecutive quarter of profitability. The company delivered a strong performance in the first quarter of FY24, achieving an adjusted EBITDA of INR 13.6 Cr, showcasing a significant 181% year-on-year increase.

In Q1 FY24, MobiKwik recorded INR 177 Cr in revenue, indicating a substantial 68% growth compared to Q1 FY23. On a sequential basis, the growth was just over 10% from INR 160 Cr in Q4 FY23. The contribution margin experienced a notable YoY surge of 108%, reaching INR 73.9 Cr between Q1 FY23 and Q1 FY24.

The company’s track record in the past few years has been up and down. In FY21, revenue declined by 18% compared to FY20 as the pandemic disrupted life for many fintech companies. 

In FY22, income got a big bump as MobiKwik accelerated its lending business. The company lowered expenditures by relying on the natural demand for credit services during this period, which also closed the profitability gap. 

Then, as we can see in FY23, the growth is marginal. To its credit, MobiKwik managed to reduce its expenses in FY23 compared to FY22, resulting in better profitability. 

The company is projecting revenue to touch INR 1,100 Cr and net profits to hover around INR 40 Cr – INR 50 Cr in FY24. This would indicate a near 2X growth in the ongoing fiscal year, but much of this will depend on growth from its lending business. 

The Shifting Revenue Equation

MobiKwik’s revenue from operations comprises two streams: payment services and financial services.

The former includes revenue derived from merchant fees, and convenience fees charged to consumers for specific categories of services such as bill payments, mobile or DTH recharges. Revenue from financial services is from the lending business.

A bulk of this comes from MobiKwik Zip (credit line), Zip EMI (which offers loans with a longer tenure). Besides this, the company has a P2P investment/lending platform called Xtra. 

Interestingly, it was only after the introduction of lending products that MobiKwik’s revenue fortunes turned. In its DRHP, the company said, “We have experienced significant growth in recent years, with our revenue from financial services increasing by 376.52% from INR 60 Cr in Fiscal 2021 to INR 285 Cr in Fiscal 2023.” 

More than half of the company’s revenue in FY23 came from financial services. The gross value of loans disbursed has grown nearly 20X in the past two fiscal years. Lending GMV grew at 404.16% from INR 300 Cr in FY21 to INR 1,512 Cr in FY22 and further at 238.24% to INR 5,115 Cr in FY23. 

In March 2023, MobiKwik’s initial wallet business only brought in 45% of all revenue for the company, compared to nearly 80% as of March 2021. 

This suggests that merchants are increasingly opting out of MobiKwik’s payments gateway and allied services, possibly due to the market dominance of UPI-first competitors such as PhonePe, Google Pay, Paytm and CRED.

“The lending segment faces challenges in valuation due to the small ticket size of the loans on MobiKwik and the tightening of regulations by the RBI in recent months. Any new regulatory changes could significantly impact MobiKwik’s business model,” said Unlisted Zone’s Paliwal.

However, Treelife’s Agarwal believes MobiKwik is on the right track. 

Highlighting continued progress towards profitability, showcasing diversification efforts, and demonstrating a clear vision for future growth will be critical to mitigate investor concerns about slow revenue growth and reliance on revenue from lending. 

The Market Demands More From MobiKwik 

Whether it’s wallet services, bill payments, investments and offering co-branded lending products, MobiKwik is directly competing with PhonePe, Paytm, Amazon Pay, Airtel Payments Bank, and several other fintech platforms. Even the likes of CRED, Groww, BharatPe and others have joined the merchant lending and personal loans market. 

MobiKwik has looked to push this with the launch of point-of-sale devices for credit cards, debit cards, wallets, and UPIs. Here, too, there is stiff competition with the likes of Pine Labs and other players also prominent rivals. 

In its DRHP, MobiKwik claims it has better capital efficiency on the lending front. But this is not a thesis that has passed the test of time. The fact is that rival platforms have a much larger scale than MobiKwik in terms of consumers and merchants. And over time, this scale will improve capital efficiency for other players. 

Essentially, the new MobiKwik — the one that has filed the 2024 DRHP — operates in a fiercely competitive sector, where regulatory shifts are rapid, particularly in the business of small-ticket loans that are the primary focus area for digital lenders. 

The decline in revenue from payment services also indicates a shift from a product-led approach to growth dependent on the loan book. In that sense, MobiKwik is moving closer to a traditional financial services company rather than a digital wallet. 

This dependency on lending would need to be reduced if MobiKwik has to broaden its revenue streams. 

Can MobiKwik Add To Lending?

In the short term, investors backing MobiKwik’s IPO are likely to yield reasonable returns, given the favourable current market conditions and the company’s recent profitability. 

However, long-term sustainability of the quarterly profits hinges on strategic initiatives such as creating a better product to drive wallet usage, similar to how Paytm has attempted in the past 2-3 years. Acquiring a small finance bank licence would also be critical for companies such as MobiKwik, but these are governed by tight RBI regulations. 

Treelife’s Agarwal believes that MobiKwik’s listing could see some gains for initial investors as the IPO size is comparatively smaller than Paytm or other unicorns that went for listings and the fact that the company has managed to report profits. 

However, in the long term, MobiKwik needs to consistently work on its product strategy and build a more robust platform that does not depend heavily on lending. Paytm’s example would serve MobiKwik well in the long run. Paytm’s dependency on lending was called into question in late 2023 and the company has seen some shrinkage in a significant portion of the lending business on a quarter-on-quarter basis. 

Paytm said it expects more decline in low-ticket size loans over the next two quarters and is currently looking to recalibrate its lending business towards longer tenures and higher ticket sizes. This is expected to take up to Q2 FY25. 

Even despite its massive scale, Paytm was forced to rethink its strategy due to changes in regulations or the risk appetite of banks. MobiKwik is also in the same bucket and will need to diversify its revenue sources as soon as possible in the run-up to the IPO and soon after. 

MobiKwik has done a lot of hard work in the past couple of years to put its house in order and move towards profitability, but given the competitive fintech market, there is still a lot more work to be done.

[Edited by Nikhil Subramaniam]

The post A Tale Of Two DRHPs: Decoding IPO-Bound MobiKwik’s Business Strategy Shift From 2021 To 2024 appeared first on Inc42 Media.